Transition Studies Review

, Volume 15, Issue 3, pp 542–557

Institutional Infrastructure and Economic Performance: Dynamic Panel Data Evidence

Structural Reforms and Public Choices

DOI: 10.1007/s11300-008-0026-1

Cite this article as:
Law, S.H. & Bany-Ariffin, A.N. Transit Stud Rev (2008) 15: 542. doi:10.1007/s11300-008-0026-1

Abstract

This paper attempts to empirically investigate the link between institutional quality and economic performance in a group of 72 countries during 1980–2001, using dynamic panel data analysis. Five institutional indicators that represent the overall institutional infrastructures of an economy are employed, namely corruption, rule of law, bureaucracy, repudiation of contracts and risk of expropriation. The empirical results demonstrate that institutions’ variables are statistically significant determinants of economic performance. The findings also suggest that the effects of institutional quality vary according to the level of economic development, where institutions are more responsive in the low-income and middle-income countries. In terms of specific effect of institutional development, the results reveal that the higher level of rule of law is most potent in delivering long-run economic benefits.

Keywords

Institutions Laws Regulations Economic growth Dynamic panel data analysis 

JEL Classification

O43 P0 

Copyright information

© Springer-Verlag 2008

Authors and Affiliations

  1. 1.Department of Economics, Faculty of Economics and ManagementUniversity Putra MalaysiaSelangorMalaysia
  2. 2.Department of Accounting and Finance, Faculty of Economics and ManagementUniversity Putra MalaysiaSelangorMalaysia