A cross-regional investigation of institutional quality and sustainable development

Abstract

The present paper analyses the impact of institutional quality on sustainable development in 65 developing economies belonging to various regions over the period 1984 to 2019. As sustainable development indicators, it considers adjusted net savings for economic sustainability, and CO2 emissions and forest area preservation as environmental sustainability proxies. The results show a positive role of institutional quality in economic sustainability. On the environmental side, a negative relationship is revealed between institutional quality and CO2 emissions across regions, whereas there is evidence of institutional ineffectiveness regarding deforestation. Further analysis evaluates the role of disaggregated institutional factors, covering political stability, administrative capacity, and political system accountability for sustainable development across regions. Accordingly: (1) law, order and democratic quality show a higher impact in the Middle East and North Africa; (2) control over corruption enjoys a positive role in the Latin America and the Caribbean; and (3) the impact of bureaucratic quality is higher in Asia relative to other regions. However, the disaggregated institutional components are unable to explain deforestation. Accordingly, the results regarding the differential impact of institutional disaggregated components on sustainable development indicators across regions should be considered when designing regional environmental policies.