Good Governance and Economic Growth in South European Countries

Abstract

Economic growth is a prerequisite for economic development. However, there is no “recipe” for countries to create an environment of prosperity and to achieve high rates of economic growth. Many researchers have examined the drivers of economic growth and find that economic growth depends on many economic and institutional variables. In this context, the main objective of this paper is to examine the role of good governance on economic growth in piicgs countries (Portugal, Ireland, Italy, Cyprus, Greece, and Spain). The database was collected from many sources and the empirical analysis is based on a 2SLS (two-stage least squares) technique. In our empirical results, we find that trade openness, gross capital formation, inflation, political stability, rule of law, debt rule, budget balanced rule, and the combination between debt rule/budget balanced rule with political stability and combination between debt rule/budget balanced rule with rule of law are significant drivers of economic growth in piicgs countries while foreign direct investments, government effectiveness, voice and accountability, regulatory quality, fiscal rule index and expenditure rule are insignificant. However, the results may be different if we use other sample groups and/or different periods.