Impact of Governance on Economic Growth

The impacts of governance on economic growth is still only partially understood. The aim of this researh to understand the impact of governance on the economic growth. This study finds that control of corruption is a critical factor for economic growth and one unit increases in control of corruption causes 6.9% increse in the economic growth. However, it is important to manage both corruption control and political stability and absence of violence/ terrorism indicators effectively to achive a higher economic growth. In comparition to the European Union countries and the North American countries, the economic growth rate is significantly lower in all other regions except the Middle East and North Africa. The economic growth rate in high-income countries is 20% higher than the middle income countries. On the other hand, the low-income countries show 23.5% lower economic growth than the middle income countries. This research used data from 145 countries for the period of 2002-2014. The included governance variables are control of corruption, political stability and absence of violence/terrorism, and voice and accountability. foreign direct investments, gross capital formation, government consumption, and trade openness were taken into account the model, to control their effects on economic growth. Dummy variables were included to capture the regional effects and the effects of the income level of the countries. The fixed effects and random effects techniques were applied in a balanced panel. The main data sources are the Worldwide Governance Indicators and the World Development Indicators databases.