IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/128141.html

Testing Causal Relationship between Institutional Quality and Inclusive Growth: Evidence from Panel Causality Tests

Author

Listed:
  • Raifu, Isiaka Akande
  • Afolabi, Joshua Adeyemi
  • Kumeka, Terver Theophilus

Abstract

This study utilizes data from 162 countries to examine the nature and direction of causality between institutional quality and inclusive growth from 1996 to 2020. It employs three distinctive panel causality test methods to ensure the robustness and validity of the findings. The results of one of the causality test methods show mixed findings, while those of the other two methods provide evidence that institutional quality and inclusive growth reinforce each other. Overall, the results are robust to alternative estimation methods. These findings hold significant policy implications, emphasising that governments across all countries should prioritise the development of strong institutions and policies that promote inclusive growth as complementary strategies for sustainable development.

Suggested Citation

  • Raifu, Isiaka Akande & Afolabi, Joshua Adeyemi & Kumeka, Terver Theophilus, 2026. "Testing Causal Relationship between Institutional Quality and Inclusive Growth: Evidence from Panel Causality Tests," MPRA Paper 128141, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128141
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/128141/1/MPRA_paper_128141.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Góes, Carlos, 2016. "Institutions and growth: A GMM/IV Panel VAR approach," Economics Letters, Elsevier, vol. 138(C), pages 85-91.
    2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-1395, November.
    3. Ifzal Ali & Juzhong Zhuang, 2007. "Inclusive Growth toward a Prosperous Asia: Policy Implications," ADB Economics Working Paper Series 97, Asian Development Bank.
    4. Raj Chetty & Nathaniel Hendren & Patrick Kline & Emmanuel Saez, 2014. "Where is the land of Opportunity? The Geography of Intergenerational Mobility in the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1553-1623.
    5. Daron Acemoglu & Simon Johnson, 2005. "Unbundling Institutions," Journal of Political Economy, University of Chicago Press, vol. 113(5), pages 949-995, October.
    6. Terver Theophilus Kumeka & Isiaka Akande Raifu & Oluwatosin Adeniyi, 2024. "Globalisation and Inclusive Growth in Africa: The Role of Institutional Quality," Foreign Trade Review, , vol. 59(1), pages 62-97, February.
    7. Frees, Edward W., 1995. "Assessing cross-sectional correlation in panel data," Journal of Econometrics, Elsevier, vol. 69(2), pages 393-414, October.
    8. José Aixalá & Gema Fabro, 2008. "Does The Impact Of Institutional Quality On Economic Growth Depend On Initial Income Level?," Economic Affairs, Wiley Blackwell, vol. 28(3), pages 45-49, September.
    9. Abubakar, Sule, 2020. "Institutional Quality and Economic Growth: Evidence from Nigeria," African Journal of Economic Review, African Journal of Economic Review, vol. 8(01), January.
    10. Andrew G. Berg & Jonathan D. Ostry, 2017. "Inequality and Unsustainable Growth: Two Sides of the Same Coin?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(4), pages 792-815, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Busra Agan Celik & Kingsley Okiwelu & Stephen Obinozie Ogwu & Gabriel Chukwuka Nzeadachie, 2026. "The moderating role of institutional quality in the debt stock-financial development-economic growth nexus: evidence from the panel QARDL model," SN Business & Economics, Springer, vol. 6(4), pages 1-36, April.
    2. Nazima Ellahi & Adiqa Kausar Kiani & Muhammad Awais & Hina Affandi & Rabia Saghir & Sarah Qaim, 2021. "Investigating the Institutional Determinants of Financial Development: Empirical Evidence From SAARC Countries," SAGE Open, , vol. 11(2), pages 21582440211, April.
    3. Nourallah, Mustafa & Öhman, Peter & Hamati, Samer, 2024. "Financial technology and financial capability: Study of the European Union," Global Finance Journal, Elsevier, vol. 62(C).
    4. Hamit-Haggar, Mahamat, 2012. "Greenhouse gas emissions, energy consumption and economic growth: A panel cointegration analysis from Canadian industrial sector perspective," Energy Economics, Elsevier, vol. 34(1), pages 358-364.
    5. Gong, Yuexuan & Xue, Haiping & Chen, Tao, 2025. "Income inequality and shadow education in China: From the perspective of social stratification," China Economic Review, Elsevier, vol. 92(C).
    6. Coviello, Decio & Islam, Roumeen, 2006. "Does aid help improve economic institutions ?," Policy Research Working Paper Series 3990, The World Bank.
    7. Sumon Kumar Bhaumik & Manisha Chakrabarty & Ali M. Kutan & Ekta Selarka, 2021. "How Effective are Stock Market Reforms in Emerging Market Economies? Evidence from a Panel VAR Model of the Indian Stock Market," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(4), pages 795-818, December.
    8. Bluhm, Richard & Crombrugghe, Denis de & Szirmai, Adam, 2012. "Explaining the dynamics of stagnation: An empirical examination of the North, Wallis and Weingast approach," MERIT Working Papers 2012-040, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    9. Sarafidis, Vasilis & Yamagata, Takashi & Robertson, Donald, 2009. "A test of cross section dependence for a linear dynamic panel model with regressors," Journal of Econometrics, Elsevier, vol. 148(2), pages 149-161, February.
    10. Lin, Faqin & Sim, Nicholas C.S., 2014. "Baltic Dry Index and the democratic window of opportunity," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 143-159.
    11. Vasilis Sarafidis & Tom Wansbeek, 2012. "Cross-Sectional Dependence in Panel Data Analysis," Econometric Reviews, Taylor & Francis Journals, vol. 31(5), pages 483-531, September.
    12. Serhan Cevik & Mohammad Rahmati, 2015. "Breaking the Curse of Sisyphus: An Empirical Analysis of Post-Conflict Economic Transitions," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 57(4), pages 569-597, December.
    13. Guilherme Amorim & Marcelo E. A. Silva, 2023. "Governance and growth: A panel VAR approach," Economics Bulletin, AccessEcon, vol. 43(4), pages 1896-1907.
    14. Ouni, Manel & Mraihi, Rafaa, 2025. "Air transportation and inclusive growth in Tunisia: Evidence from Autoregressive Distributed Lag and wavelet coherence approach," Journal of Air Transport Management, Elsevier, vol. 128(C).
    15. Wasmer, Etienne & Laouenan, Morgane & Bhargava, Palaash & Eymeoud, Jean Benoit & Plique, Guillaume, 2021. "A Cross-verified Database of Notable People, 3500BC-2018AD," CEPR Discussion Papers 15852, Centre for Economic Policy Research.
    16. Paolo Fornaro, 2025. "Drivers of wage dispersion in Finland," Working Papers 353, Työn ja talouden tutkimus LABORE, The Labour Institute for Economic Research LABORE.
    17. Niño-Zarazúa, Miguel & Roope, Laurence & Tarp, Finn, 2014. "Global interpersonal inequality Trends and measurement," MPRA Paper 52881, University Library of Munich, Germany.
    18. Etensa, Tesfaye & Alemu, Tekie & Yayo, Mengesha, 2025. "Modeling energy prices and inclusive growth in Sub-Saharan Africa: Potential transmission pathways," Utilities Policy, Elsevier, vol. 97(C).
    19. Dirks, Maximilian & Schmidt, Torsten, 2023. "The relationship between political instability and economic growth in advanced economies: Empirical evidence from a panel VAR and a dynamic panel FE-IV analysis," Ruhr Economic Papers 1000, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    20. Ryan H. Murphy & Colin O’Reilly, 2019. "Applying panel vector autoregression to institutions, human capital, and output," Empirical Economics, Springer, vol. 57(5), pages 1633-1652, November.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:128141. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.