Abstract
Through several conduits, sound institutional quality is pivotal for economic development, as there is evidence that stable democratic institutions, rule of law and sound governance structures in the administration are highly conducive to promote growth. Therefore, a high institutional quality is not only the end point, but also the starting point of a more sustainable development. In this paper we provide some theoretical considerations as well as empirical evidence, based on several regression analyses, that the quality of institutions in a wider sense, and governance, which includes not only the level of “politics” itself, but also the administrative level, is relevant not only for the macro-level of development (i.e. the increase of the national welfare and foreign investment), but also on a micro-level: A stronger participation of private enterprises in public service provision and the introduction of public-private part¬nerships depends to a high degree on the institutional quality. This is even more relevant as the improvement of public services and of core infrastructures can be seen as crucial multipliers for future growth.
Highlights
In several ways, institutional quality is pivotal for economic development
They will not resort to private partnerships (PPP) solutions, but will rather liberalise the complete sector and open it completely to the private sector
The results of our research provide strong evidence that a significant positive relationship exists between the indicator Government Effectiveness and the number of PPP projects in a country
Summary
Institutional quality is pivotal for economic development. There is much evidence that democratic institutions, the absence of corruption, rule of law, and sound governance structures in the country’s administration are conducive to promoting growth in terms of Gross Domestic Product (GDP), or to attracting foreign direct investment (FDI), to mention just some of its most relevant determinants (see for the discussion of the role of institutions e.g. Acemoglu and Robinson, 2012). In our own analysis, focusing not on the macro-, but on the micro-level, we assume that (good) institutions are important for economic growth as they facilitate privatesector investments in infrastructure and the private sectors contributions to public services.
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