Institutions and economic performance: evidence from Western Balkans 1996-2016

Abstract

Exploring the relationship between the role of institutions and economic performance has been an area of much research in political economy. There is a rich literature on Solow growth model linking institutions with better economic performance, extended growth model, endogenous growth model and extended endogenous growth model. However, this assumption may not hold in developing countries. The role of regulatory institutions and the institutional setting are supposed to lead to higher levels of growth through improving productivity and foreign direct investment. This article makes an attempt to test the role of institutions in economic performance in Western Balkans. The methodological approach used is in article is based on econometric analysis of the correlation between institutions and economic performance. The analysis is based on the data on the quality of institutions index of the World Bank and economic growth figures between 2006-2016. Our econometric analysis suggests that there is strong causal link between the quality of governance and economic performance in Western Balkans.