Dynamic Institutions Quality and Sustainable Development: Evidence from Developing Countries

Abstract

This article empirically examines the direct and indirect impact of dynamic institutions' quality on sustainable development. Dynamic institution's quality is considered in the following forms; political and ethnic institutions, market legitimizing and regulating institutions and democratic institutions. For the empirical model, we use annual data set of 47 developing countries across the period 2000-2015. To address the issue of endogeneity, the Dynamic Panel System Generalized Method is employed. Our findings suggest that ethnic conflicts have a negative significant impact on sustainable development while democracy shows an insignificant impact on sustainable development. Market regulatory institutions are found to have a positive significant impact on sustainable development. In addition to this, the multiplicative impact of dynamic institutions through either economic growth efficiency or FDI channels indicates a positive impact on sustainable development except for the rule of laws. Finally, we suggest that dynamic institutions' quality is necessary to enhance economic activities and attract foreign investment to ensure sustainable economic development in a specific set of developing countries. The policymakers should also focus on structural improvements regarding the rule of law enforcement for achieving sustainable economic development goals in selected developing countries.