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Impact of governance on economic growth in developing countries: a case of HIDC vs. LIDC

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Abstract

The purpose of this study is to find whether governance contributes to positive or negative economic growth in developing countries. The connections between the Worldwide Governance Indicators were examined in 111 high- and low-income developing countries (HIDC and LIDC) between 1996 and 2018 to determine which, if any indicators, have a positive or negative effect on the per capita GDP, and therefore the economy. We use fixed effects and perform three different regressions in our analysis. One for the entire sample then another two regressions, one for HIDC and one for LIDC. We find that two governance indicators, Rule of Law and Control of Corruption have positive effects on developing countries’ GDP per capita where Voice and Accountability had a small negative effect on developing counties’ GDP per capita. We find that controlling for corruption and accounting for rule of law is of paramount importance to drive economic growth for developing economics. Within the existing literature, there is neither a theoretical consensus nor consistent empirical evidence that would lead us to believe the relationship is positive, negative or non-existent, for low- and high-income developing countries. We find strong evidence that voice and accountability exacerbate per capita income in LIDC, while it helps promote higher per capita income in HIDC.

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Notes

  1. Less than 0.05.

  2. Both AIC and BIC appropriate mentioned number of lags.

  3. The lag length is always unknown and therefore has to be estimated via various lag length selection criteria such as the Aikaike’s information criterion (AIC) (Akaike 1973), Schwarz information criterion (SIC) (Schwarz 1978).

  4. The names of the countries in each sample are provided in Table 1.

  5. Especially Voice and Accountability. In contrast, LIDC Voice and Accountability negative impact on economic growth.

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Authors and Affiliations

  1. Department of Economics and Finance, College of Business, Tennessee State University, 330 10th. Ave. North Suite K450, Nashville, TN, 37203-3401, USA

    Fadi Fawaz & Ani Popiashvili

  2. College of Business, Tennessee State University, 330 10th Ave. North, Nashville, TN, 37203-34010, USA

    Anis Mnif

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  1. Fadi Fawaz
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  2. Anis Mnif
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  3. Ani Popiashvili
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Correspondence to Fadi Fawaz.

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Fawaz, F., Mnif, A. & Popiashvili, A. Impact of governance on economic growth in developing countries: a case of HIDC vs. LIDC. J. Soc. Econ. Dev. 23, 44–58 (2021). https://doi.org/10.1007/s40847-021-00149-x

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