The Impact of Institutional and Governance Quality on Economic Performance: Cross Country Analysis
This research aimed to assess the impact of five major indicators of institutional and governance quality on economic performance in 12
African and Asian countries2. These indicators include rule of law, political stability, government effectiveness, government regulatory quality,
and corruption control indicator, all taken from the World Bank database on Worldwide Governance Indicators. The study employs annual
panel data cross-section analysis using a structural equation model, for the sample period 2012 - 2017. The share of the agriculture sector as
a ratio of GDP for each country used as a dependent variable, and the five institutional and governance quality indicators as explanatory
variables. Our finding shows the rule of law indicator has a significant impact on the other four indicators. That is to say, improvement in the
rule of law induces less corruption, improvement in government effectiveness, improvement in regulatory quality, and improvement in political
stability. Also, our finding indicates a one-unit decrease in corruption, increase economic growth by 0.17 units, and one-unit improvement in
government effectiveness enhance economic growth by 0.15 units. The findings of the paper also indicate if the group of the countries in the
sample, able to improve their institutional and governance quality to a non-negative zero scores level, they can sustain an economic growth
rate of 8% on average per year.
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