Estimating the Quality of Economic Governance: A Cross-Country Analysis
This paper proposes a methodology to combine different dimensions of economic governance into a combined index. The quality of economic governance index (QEGI) is estimated as the weighted average of principal components of the standardised economic governance indicators, where weights are variances of successive principal components. The paper reports the QEGI for 71 developing and transition economies in 1998-2000. The evidence from a simple scatter diagram and a cross country regression analysis indicates that the better economic governance positively affects the economic performance (e.g., rise in per capita income, decline in poverty level, etc.) for sample of countries in our analysis.
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