Indicators Of Institutional Quality Research Articles

Financial inclusion, institutional quality, and economic growth in MENA countries: some evidence from panel cointegration

ABSTRACT The purpose of this paper is to examine financial inclusion indicators with some institutional quality indicators to better understand their combined effect on economic growth in the context of MENA region using panel cointegration tests. The study covers a sample of 16 countries during the 1997–2018 period. The main findings show a positive connection between economic growth and institutional quality in the long run. Moreover, institutional quality negatively affects financial inclusion while no effect of financial inclusion on economic growth was found. These results show that the most of MENA countries have not reached the level of institutional quality, beyond which the financial inclusion can act as a growth factor.

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

PurposeThis paper aims to assess the short- and long-run effects of the interaction between institutional quality and financial development (FD) on the competitiveness of the WAEMU economy over the period 2007–2018.Design/methodology/approachThe methodology consisted of cross-referencing a synthetic indicator of FD with indicators of institutional quality and then estimating an auto regressive distributed lag model.FindingsThe results of the pooled mean group and dynamic fixed effect estimation show a positive and significant impact of this interaction on the competitiveness of the economy in the long run. In the short run, the results are quite similar to those in the long run for the direct effects but different for the crosses. Also, the analysis of country specificity shows that the results are similar to those in the short run since the interaction between FD and institutional quality (political stability and government effectiveness) negatively affects the competitiveness of Burkina Faso, Ivory Coast and Mali, and positively affects the competitiveness of Benin and Senegal.Social implicationsThese results suggest the need for effective policies to improve the quality of institutions to enhance the mobilization of financial resources through FD to ensure the competitiveness of economies. Improving the quality of the political and institutional environment is a prerequisite for economic competitiveness.Originality/valueThe paper is in line with the New Institutional Economics that developed in the 1970s. This referential framework is a heterogeneous body of work that encompasses works whose common point is the determination of the role of institutions in economic coordination. Unlike previous studies, which have focused on the contribution of the interaction between institutional quality variables and FD on economic growth, this paper analyzes the effects of this interaction on economic competitiveness. It, therefore, constitutes a contribution to this literature and aims primarily to fill this gap.

The role of institutional quality in the relationship between financial development and economic growth: Emerging markets and middle-income economies

In this study, the relationship between economic growth and financial development was analyzed for emerging markets and middle-income economies. The effect of financial development on growth, whether there is institutional quality or not, has also been investigated. In addition, which financial development indicator is more effective for growth has been examined. Six institutional quality indicators and seven financial development indicators were used. According to the Dumitrescu–Hurlin causality test results, there is a causality relationship between all financial development indicators and growth. According to the estimation results, financial development indicators have a positive effect on growth in the presence of institutional quality. However, if institutionalization is not included in the model, the effect of financial development indicators on economic growth is statistically insignificant.

The interrelationship between corruption and the shadow economy: a perspective on FDI and institutional quality

PurposeThis study explores the relationship between corruption and shadow economy (SE) by examining the potential links and interactions between these two phenomena to see whether it is a one-way or two-way relationship and a complementarity or substitution linkage.Design/methodology/approachUsing a dataset comprised of 145 countries all over the world between 1996 and 2015, the authors apply the simultaneous two-step system generalized method of moments approach to address the research question.FindingsThe study findings support a positive bidirectional relationship between corruption and SE. As such, this study has provided evidence supporting the complementarity association. In the authors' further analyses, they point out that several factors can moderate this positive bidirectional linkage. In particular, while Foreign Direct Investment (FDI) inflows strengthen it, it is weakened by other institutional factors such as civil liberties and political rights. Finally, by splitting the full sample into three different subsamples and then examining countries at varying stages of economic development, the authors can gain valuable insights into the evolving dynamics of the relationship between corruption and SE. Specifically, while the authors observe that the positive direction of corruption to SE remains unchanged across different nations, they observe that the positive influence of SE on corruption is strongest among developed economies only.Practical implicationsThe study findings provide an important policy implication. This study highlights the synergistic relationship between SE and corruption, indicating that reducing corruption will reduce the size of the SE. Consequently, this reduction in the SE can mitigate the adverse effects of corruption on economic development.Originality/valueThis paper is among the first empirical studies that critically investigate the interrelationship between SE and corruption. It then explores how this two-way linkage is conditional on some factors, such as economic development levels and institutional quality indicators.

Extending the frontiers of financial development for sustainability of the MENA states: The roles of resource abundance and institutional quality

AbstractResource abundance characterizes economies within the MENA region from North Africa to the Middle East. As such, to improve financial development (FD) for regional economic sustainability, this study provides a comprehensive analysis of the roles of natural resources abundance and institutional quality indicators on the region's FD while underscoring the inflationary levels and general economic growth trends amidst rising globalization. The adopted empirical strategy (CS‐ARDL and AMG) is employed for potential cross‐sectional dependency (CD) and slope homogeneity in the regional data spanning over two decades (2000–2020). Unlike the extant literature, two separate regional FD indicators were considered for an insightful analysis namely, banking financial services via domestic credit to private sector, and financial stability via the Z‐score values showing the tendencies of default in a country's banking structure. Regardless of the FD indicator, the results reveal that natural resources, growth trends, and inflationary levels significantly spur long‐run regional FD thereby invalidating the financial resource curse hypothesis in the region. Furthermore, both institutional quality levels and globalization produced detrimental impacts on FD levels. However, the interaction between institutional quality levels and natural resources shows a desirable FD‐stimulating effect in the region, noticeably when FD is proxied by the Z‐score. Thus, implying that stronger institutions are crucial for MENA's overall financial stability vis‐à‐vis reduction in the risk of default in the banking system. Hence, policy recommendations including the strengthening of institutional capacities among others, were suggested to regional authorities toward harnessing resources for sustainable regional FD.

Do institutions impact differently inward greenfield FDI and cross-border M&A sales? A study of five institutional quality indicators in developed and developing countries

PurposeThis study aims to test the impact of different institutional quality indicators on two modes of foreign direct investment (FDI)-greenfield investment and cross-border mergers and acquisitions (M&As) for a sample of 110 countries over the period 2003–2017.Design/methodology/approachThe authors develop a model of well-known FDI determinants, such as market size and potential, openness, the value of the national currency and the quality of institutions. The authors examine one-by-one five different institutional factors: law and order, investment profile of the host country, control of corruption (anti-corruption); democratic accountability, and government stability, applying a generalized method of moments (GMM) estimator that assures no endogeneity and reverse causality of the key explanatory variables.FindingsThe results point out the fact that fertile institutional conditions for attracting greenfield FDI to developing countries require law and order, good investment conditions and a state of democracy, but not necessarily tight control of corruption and a stable government. On the other hand, the appropriate institutional environment for attracting cross-border M&A sales flows to developing countries includes strong law and order, good investment conditions, strict control of corruption and strong democratic accountability. The results for developed countries show overall smaller importance of institutions as a determinant of both types of FDI.Originality/valueThis is the first study to analyze the differentiated determinants of the two modes of investment. The study holds implications for crafting two different policies for attracting greenfield FDI and M&A sales.

Examination of the poverty-environmental degradation nexus in Sub-Saharan Africa

The relationship between environmental degradation and poverty has increasingly become the focus of national strategic decision-making in recent years. However, despite several theoretical explorations on the nexus, a dearth of empirical literature on the poverty-environmental degradation nexus, specifically on Sub-Saharan Africa (SSA), still exists. In this study, we investigated the poverty-environmental degradation nexus in SSA. We hypothesized that poverty is both a cause and effect of environmental degradation, and this relationship is explained as a vicious cycle. Unlike previous studies, we employed several alternative indicators of environmental degradation to examine the poverty-environmental degradation nexus in this study. We used data from 41 countries of SSA between 1996 and 2019 and employed the generalized method of moments (GMM) approach. The findings suggest a cyclical relationship between poverty and environmental degradation in SSA, which confirms that an increase in poverty leads to an increase in environmental degradation, especially in deforestation and PM2.5 emissions. Similarly, the increase in environmental degradation positively affects poverty in SSA. We also confirmed that exogenous conditioning factors such as population growth rate, education, industrialization, and income inequality, institutional quality indicators such as governance effectiveness, control of corruption, freedom ad civil liberty, and democracy, and endogenous factors including fossil fuel energy use, fuelwood energy use, household health expenditure, infant mortality rate, and agriculture productivity influence the nexus between poverty and environmental degradation. The findings on the relationship between poverty and environmental degradation in SSA are a testimonial evidence that both poverty and environmental degradation are significant issues in SSA. Hence, poverty alleviation policies in SSA should not lead to PM2.5 emissions and deforestation, which may as well force people into a poverty-environmental degradation trap. Instead, poverty reduction policies should simultaneously achieve environmental conservation.

Analysis of Non-Oil Exports – Economic Growth Relationship in Nigeria: The Role of Institutional Qualities

ABSTRACT: One of the primary policy issues over the years in the context of the Nigerian economy has been how to enhance the performance of the non-oil export sector of the economy in order to diversify the country's export base and contribute more to GDP (gross domestic product). Rather than a lack of policy initiatives, the noticeably abysmal performance of Nigerian non-oil exports has been increasingly attributed to poor policy implementation. However, the question of whether such poor implementation is due to the quality of institutional settings, particularly in a developing economy such as Nigeria, has been largely unexplored. To the best of our knowledge, none of the previous studies deemed it necessary to control for the role of institutional quality in the non-oil export-growth nexus from the perspective of the Nigerian economy. To bridge this important gap in the literature, we hypothesize that institutional qualities matter in the relationship between economic growth and non-oil exports. Motivated by a desire to diversify Nigeria's economy away from its reliance on oil exports, this study re-examines the export-led growth hypothesis from the standpoint of non-oil exports while accounting for the role of institutional qualities. We employ the ARDL estimation technique as the best econometric model for the study given its suitability for variables of mixed order of integration in terms of the series' stationarity. More so, the ARDL technique enables us to simultaneously capture both the short-run and long-run dynamics of the nexus. Empirically, we show results that suggest that improved institutional qualities have the potential to boost the positive effects of non-oil exports on economic growth. We also find that the extent to which institutional quality matters for enhancing the effects of non-oil exports on economic growth depends on the institutional quality indicators chosen. On the whole, we expand on the export-led growth hypothesis by considering the role of institutional characteristics and conclude that improving institutional qualities should be prioritized in the path to Nigerian economic diversification.

Role of institutional quality in debt-growth relationship in Pakistan: An econometric inquiry

This study attempts to investigate the mediating role of institutional quality on the relationship between public debt and economic growth in Pakistan spanning 1996–2020. Time series data on all six World Bank World Governance indicators of institutional quality is used in the empirical analysis. Findings of the autoregressive distributed lag (ARDL) bounds testing technique and error correction method (ECM) confirmed the existence of cointegration among variables of interest. The short-run results indicate that public debt has a favorable association with economic growth, while the relationship is found to be detrimental in the long run. Furthermore, the combined effect of public debt and institutional quality indicators revealed the significant positive association with economic growth, suggesting that better institutional quality can contribute to mitigate the negative impact of public debt on economic growth in Pakistan.

Effects of Property Rights on Entrepreneurship Development in the CEMAC Sub-Region

Objective: This article sought to investigate the effects of property rights on entrepreneurship development in the CEMAC Sub- region. Research Design & Methods: Data for this study was collected from the World Governance Indicators (WGI) for the six indicators of governance and World Bank data for entrepreneurship development and control variables. Pooled Ordinary Least Squares estimation technique was used to estimate the parameters of the model. Findings: The findings from the data analysis revealed that there was a negative and significant effect of democracy (captured by voice and accountability index) on entrepreneurship development in CEMAC. In accordance with theoretical expectation, results from data analysis further revealed that there was a positive and significant effect of government effectiveness on entrepreneurship development in the sub region. Results from the pooled OLS estimation showed that there was a negative and significant effect of control of corruption on entrepreneurship development in CEMAC. Contribution & Value Added: The fourth indicator of institutional quality used in this work is political stability. Thus, an improvement of public services by reducing bureaucratic bottlenecks, improvement in the fight against corruption and increasing the level of investments could enhance entrepreneurship development in the sub-region.

The growth-inequality debate revisited by rent-seeking theory: Some empirical evidence

The growth/income inequality nexus is surrounded by theoretical as well as empirical ambiguities. These ambiguities can be lifted by focusing on the nature of inequalities and not their level. Inequalities may be the result of productive profit-seeking activities or unproductive rent-seeking activities. To re-assess empirically the growth/income inequality nexus, we first propose a strategy to approximate the nature of inequalities by an indicator of institutional quality. We propose an indicator of institutions' productivity which describes the prevalence of institutions favourable to the search for profit and institutions fostering the search for rents, and conversely. It is an indirect measure of the predominance of rent-seeking activities over profit-seeking ones, and conversely. Then, using a panel data covering the period 1990–2020 for 114 countries (88 developing countries and 26 developed countries) and relying on the two-way fixed effects technique to test our estimator, we show that countries where institutions' productivity is high, growth is positively related to income inequality. Conversely, growth is negatively related to income inequality in countries where institutions' productivity is low. There is thus a positive relationship between productive inequalities and growth in countries where profit-seeking institutions dominate the institutional setting. By analogy, in countries where rent-seeking institutions are dominant there is a negative relationship between unproductive inequalities and growth. Contrary to previous public policy recommendations, inequalities should not be tackled since they are pro-growth in countries with high levels of institutions’ productivity.

Climate change mitigation role of renewable energy consumption: Does institutional quality matter in the case of reducing Africa's carbon dioxide emissions?

Renewable energy and institutions have emerged among other variables touted to address climate change problems. However, empirical results have been conflicting. With a relatively poorer state of institutional quality and a lower level of renewable energy development amidst rising carbon dioxide (CO2) emissions in Africa, the study assesses: a) the direct effect of renewable energy and institutional quality on CO2 emissions in Africa; and b) the moderation role of institutional quality on the effect of renewable energy on CO2 emissions in Africa. The study relies on panel data covering 2002–2021 for 32 African countries. The Fully-Modified OLS regression method is employed to analyze the data based on the environmental Kuznets curve (EKC) hypothesis and Stochastic Impacts by Regression on Population, Affluence, & Technology (STIRPAT) model. The results show that urbanization and trade openness increase CO2 emissions. Although income has a positive effect on carbon emissions, the square term has a negative confirming the EKC hypothesis. Renewable energy also reduces CO2 emissions. Institutional quality variables of control of corruption, rule of law, regulatory quality, political stability and absence of violence, voice and accountability, government effectiveness and institutional index created from the above indicators reduce CO2 emissions. In addition, except government effectiveness, the remaining indicators of institutional quality negatively moderate the effect of renewable energy on CO2 emissions. The results among other things imply that intensifying the development and usage of renewable energy would help address the rising carbon dioxide emissions trend in Africa. Also, strengthening institutions promises to reduce CO2 emissions.

Does institutional quality modulate the effect of capital flight on economic growth in sub-Saharan Africa?

PurposeSub-Saharan African (SSA) region has been battling illegal outflow of capital over the years, with little success recorded so far. Without adequate attention, unemployment, infrastructure deficiencies and inefficient capital might be worse in the future. The purpose of this study is to investigate if institutional quality mitigates the effect of capital flight (CF) on economic growth.Design/methodology/approachThe panel data from 26 SSA countries spanning 1998 to 2018 are used. The analysis of this study was carried out through a two-step generalized method of moments technique. The principal component index is used to group the institutional quality/governance indicators into three categories: political governance, economic governance and institutional governance.FindingsThe study found that CF is harmful to the economic growth of the SSA region. The study also found that, among the indicators of institutional quality, only the rule of law and control of corruption stimulate economic growth. Contrary to expectation, the finding indicates that institutional quality does mitigate the effect of CF on economic growth in the SSA region.Originality/valueThis study provides an insight into the relevance of institutional quality in mitigating CF in sub-Saharan African region.

Dynamic common correlation effects of financial development, foreign direct investment, market size and trade openness on domestic investment: an income-level prognosis

PurposeThe study examined the impact of financial development, foreign direct investment, market size and trade openness on domestic investment for 119 countries divided into four panels that are low-income countries (LIC), lower middle-income countries (LMIC), upper middle-income countries (UMIC) and high-income countries (HIC) between 1995 and 2019.Design/methodology/approachThe present study bases its empirical procedure on the bases of the data mix. To this end, based on the presence of cross-sectional dependence, covariate-augmented Dickey–Fuller unit root and Westerlund cointegration second-generation tests were employed to validate the stationarity and cointegration of the variables, respectively. The novel Dynamic Common Correlation Effects estimator was employed to estimate the heterogeneous parameters while the Dumitrescu and Hurlin test was used to test for causality direction of the highlighted variables.FindingsThe empirical results show that market size and trade openness had a positive and statistically significant effect on domestic investment for all the income groups. Results also show that financial development had a positive and statically significant effect on domestic investment only for LMIC and HIC economies, while a positive and statistically insignificant effect was obtained for LIC, UMIC and the global panel. The causality results revealed a bidirectional relationship between domestic investment and the exogenous variables – financial development, foreign direct investment, market size and trade openness.Research limitations/implicationsIt is therefore, recommended that LIC and LMIC need to consider harmonising the financial system to lower credit limitations and adopt business-friendly policies. HIC and UMIC should seek more outward FDI policies and harmonise their trade policy, to reap more benefits from FDI and international trade.Originality/valueOn novelty, previous studies have been criticised for the effect on technical innovation of bank financing and institutional quality. This research tackles the deficiency using systematic institutional quality indicators and by taking other variables into account.

Investigate the Real Effective Exchange Rate Misalignment in OPEC Member Countries

The effective real exchange rate is one of the variables that can Misalignment from equilibrium values, Performance affects macroeconomic indicators and creates an unstable and uncertain environment in the economy. Therefore, in order to investigate the factors affecting the real effective exchange rate Misalignment in OPEC member countries during the period 1980-1980, first, in the framework of the least dynamic ordinary squares method (DOLS), the effective factors for determining the effective equilibrium effective exchange rate have been investigated and the results confirm the estimation of the positive effects of oil shocks on the intensification of exchange rate Misalignment. Then, the effect of institutional quality indicators and financial development index on exchange rate Misalignment is investigated using the generalized panel method (GMM). The results of estimation at this stage indicate that the financial development index has a positive impact and institutional quality indicators, including; The stability of the state (rule of law), the ability to account democratically (democracy), social and economic conditions (political rights and civil liberties) have had a significant negative effect on the real effective exchange rate Misalignment. Therefore, programs and policies in the countries under study should focus on improving the quality of market regulation, government accountability for its performance, and ensuring political and economic stability.

Non-performing Assets and Institutional Quality Indicators: Evidence from Developing Countries

This research studies the drivers of non-performing assets (NPAs) in developing countries. The author applied panel regression methodology to establish the links between bank-specific macroeconomic factors and institutional environment NPAs on country-level panel data of developing countries for the period spanning from 2010 to 2020. The long-held theory that NPAs cause economic growth is tested using the panel Granger causality test. Panel cointegration tests were further applied to look at whether there is a long-term relationship between the two variables. The findings of the study indicated that loan defaults often occur at a lower rate during periods of high economic growth, which consequently leads to reduced amounts of NPAs. A bigger banking sector should be more stable than a small banking sector if a strong systemic risk regulatory framework is in place. Finally, the present research shows how crucial the institutional environment is in enhancing banks’ credit quality. NPAs are significantly decreased in developing nations when there is a greater improved institutional environment.

Institutional quality and foreign direct investment in arab countries: new evidence from dynamic panel estimation (Arabic)

In this paper, we re-assess the nexus between various institutional indicators and foreign direct investment (FDI) flows in 16 Arab countries for the period (1985-2017) by employing the system Generalized Method of Moments. We contribute to existing literature in three ways: First, the impact of each institutional quality indicator on FDI flows is examined separately. Second, construct an institutional index in order to capture the overall impact of institutions on FDI. Finally, the paper also looks at the impact of the Arab Spring on FDI flows. Based on dynamic panel models, the empirical results show that some institutional indicators are more important than others in attracting more FDI in-flows. The results indicate that, the investment profile, law and order, and political institutions, lead to increased FDI flows. We also find a negative association between the Arab Spring unrest and FDI inflows.

Kayıt Dışı Ekonomi ve Finansal Gelişme: Kurumların Rolü

This paper assesses the interactive impact of financial development and institutional quality indicators on the informal economy using data from 67 developing countries from 2002-2017. We employ the fixed-effect model with Driscoll-Kraay standard errors that are heteroscedasticity consistent and robust to the general form of cross-sectional and temporal dependence. Findings reveal that financial development and institutions are substitutes for reducing the informal economy. Financial development decreases the size of the informal economy only in the absence of efficient institutions and vice versa. Finally, the study provides several essential policy suggestions for combatting the informal economy.

Opportunities for Post−COP26 Governance to Facilitate the Deployment of Low−Carbon Energy Infrastructure: An Open Door Policy

Temperatures worldwide continue to climb, while carbon emissions have exceeded previous records. To achieve environmental sustainability, countries with the Kyoto Protocol and Paris Agreement (COP26) demonstrate sophisticated technical expertise and deploy environmentally driven technologies, such as greenfield investment and renewable energy infrastructure. This proposal presents an intriguing opportunity for policymakers to identify the distinct characteristics of institutional reforms and green energy sources that may be used to mitigate carbon emissions. Governance regulatory factors, foreign direct investment (FDI), renewable energy consumption (REC), research and development expenditures, urbanization, and carbon emissions are examined in Pakistan. The study estimated the short- and long-run association between the variables using the ARDL bounds testing method for 1996Q1 to 2020Q4. In the short run, in terms of carbon emissions and economic output, the country has an upturned cord environmental Kuznets curve (EKC). The race-to-the-bottom concept holds for countries with U-shaped EKCs in the long term. The negative correlation between overseas investment and environmental damage supports the environmental halo hypothesis. Investment in research and technology may reduce emissions, even though urbanization increases them. Future and present REC are often intertwined with carbon footprints. Carbon emissions are also strongly connected with indicators of institutional quality (IQ), such as procedural efficiency, administrative effectiveness, and political unrest. The research findings demonstrated unidirectional Granger causality running from urbanization, government effectiveness, economic growth, and R&D expenditures to carbon emissions to validate urban-led emissions, institutional-led emissions, growth-led emissions, and innovation-led emissions in a country. Furthermore, R&D expenditure Granger causality was linked to inbound FDI, while government effectiveness Granger causality was linked to REC and R&D expenditures. Following the COP26 guidelines for achieving shared prosperity, the study concluded that good governance reforms, R&D expenditures, greenfield investment, and REC promote environmental sustainability and maintain air quality.

INFORMAL SECTOR AND INSTITUTIONS

In this paper, I investigate the relationship between informal sector size and various institutional quality variables: government stability, external conflict, internal conflict, corruption control, military influence over politics, religious tensions, ethnic tensions, law-and-order, democratic quality, and bureaucratic accountability. To this end, I use annual cross-country panel data covering 130 countries from 1990 to 2018. Having conducted a correlation analysis, the size of informal economy and institutional quality indicators are inversely linked. The most crucial institutional quality determinants are law-and-order (-0.53), bureaucratic quality (-0.51), military in politics (-0.45), corruption control (-0.42), and internal conflict (-0.35).