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What determines the quality of institutions?

Author

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  • Islam, Roumeen
  • Montenegro, Claudio E.

Abstract

In trying to explain institutional quality, different authors have come to conflicting conclusions. In tackling the problem themselves, the authors show three things. First, openness is positively and pretty robustly associated with institutional quality. To minimize selection bias, the authors use data sets with the greatest cross-country coverage, though they also test the significance of the variables for smaller sample sizes. The results confirm that both natural and policy measures of openness are important. Concentration of trade in natural resource exports continues to be associated with poor institutional quality after openness in trade is accounted for. Second,"social"variables, such as income inequality or ethnic diversity, are not associated with institutional quality. The significance of the inequality variable disappears when continent dummy variables are included for Africa and Latin America. Third, features of specific institutions, such as freedom of the press and checks and balances in the political system, are positively associated with overall perceptions of institutional quality. These findings hold strongly across different data sets and samples even after the authors control for the variables commonly used in the literature.

Suggested Citation

  • Islam, Roumeen & Montenegro, Claudio E., 2002. "What determines the quality of institutions?," Policy Research Working Paper Series 2764, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2764
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    References listed on IDEAS

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    Cited by:

    1. Tsani, Stella, 2013. "Natural resources, governance and institutional quality: The role of resource funds," Resources Policy, Elsevier, vol. 38(2), pages 181-195.
    2. Markus Alzer & Ramin Dadasov, 2013. "Financial Liberalization and Institutional Development," Economics and Politics, Wiley Blackwell, vol. 25(3), pages 424-452, November.
    3. Andersson, Fredrik NG, 2016. "A Blessing in Disguise? Banking Crises and Institutional Change," World Development, Elsevier, vol. 83(C), pages 135-147.
    4. Nelson Ramírez-Rondán & Saki Bigio, 2006. "Corruption and Development Indicators: An Empirical Review," Working Papers 2006-007, Banco Central de Reserva del Perú.
    5. Dang, Duc Anh, 2013. "How foreign direct investment promote institutional quality: Evidence from Vietnam," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1054-1072.
    6. Oskenbayev, Yessengali & Yilmaz, Mesut & Abdulla, Kanat, 2013. "Resource concentration, institutional quality and the natural resource curse," Economic Systems, Elsevier, vol. 37(2), pages 254-270.
    7. Dang, D Anh, 2010. "Trade Liberalization and Institutional Quality: Evidence from Vietnam," MPRA Paper 26346, University Library of Munich, Germany, revised 31 Aug 2010.
    8. Jiro Honda, 2008. "Do IMF Programs Improve Economic Governance?," IMF Working Papers 08/114, International Monetary Fund.
    9. Jacinto Brito González, 2004. "Conocimiento, geografía e instituciones: Una aproximación a la problemática del crecimiento en el archipiélago canario," Documentos de trabajo conjunto ULL-ULPGC 2004-03, Facultad de Ciencias Económicas de la ULPGC.
    10. Siddiqui, Danish Ahmed & Ahmed, Qazi Masood, 2013. "The effect of institutions on economic growth: A global analysis based on GMM dynamic panel estimation," Structural Change and Economic Dynamics, Elsevier, vol. 24(C), pages 18-33.
    11. Saki Bigio & Nelson R. Ramírez Rondán, 2017. "Corrupción e indicadores de desarrollo en el Perú y el mundo: una revisión empírica," Working Papers 2017-111, Peruvian Economic Association.
    12. repec:eee:finana:v:53:y:2017:i:c:p:66-79 is not listed on IDEAS
    13. Azémar, Céline & Delios, Andrew, 2008. "Tax competition and FDI: The special case of developing countries," Journal of the Japanese and International Economies, Elsevier, vol. 22(1), pages 85-108, March.
    14. Isaac Kalonda-Kanyama & Oasis Kodila-Tedika, 2012. "Quality of Institutions : Does Intelligence Matter?," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201206, University of Kansas, Department of Economics, revised Apr 2012.
    15. Alvarez-Diaz, Marcos & Caballero Miguez, Gonzalo, 2008. "The quality of institutions: A genetic programming approach," Economic Modelling, Elsevier, vol. 25(1), pages 161-169, January.

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