Institutional Quality Index Research Articles

Foreign Aid and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa

This study aims at understanding the impact of foreign aid on the economic growth of the Sub Saharan African region. Despite being the largest foreign aid recipient in the world, the region is the poorest with the lowest Human Development Index (HDI) and Gross National Income (GNI) per capita. This raises serious questions about the effectiveness of foreign aid to the economic growth and development of the region. As such, we examine the relationship between foreign aid, determined by the official development assistance (ODA), and the economic growth rate of the Sub Saharan Africa’s ten largest recipients of foreign aid, for a 23-year period from 1990 to 2012. These ten countries include Ethiopia, the Democratic Republic of Congo, Tanzania, Kenya, Cote d’Ivoire, Mozambique, Nigeria, Ghana, Uganda and Malawi. We find that aid by itself does not have significant impact on economic growth. However, the variable aid interacted with the policy index was found to be statistically significant and positive, which means that aid tends to increase growth rate in a good policy environment. Subsequently, when we include the institutional quality index and its interaction term in the model, we find that institutional quality has a positive and significant impact on growth; however, none of the aid variables was significant. We also test the two-gap growth model which states that foreign aid enhances economic growth through investment and imports. The results show that foreign aid is a good ingredient for supplementing investment and imports requirements in these ten countries. We believe that given foreign aid is conditional on the economic, political and institutional environment of the recipient country, this can explain why aid effectiveness is insignificant in the Sub Saharan Africa region where bad governance is a core issue on the region. Therefore, respective governments, donor agencies, and policy makers should take into consideration these multiple aspects when undertaking aid-financing activities.

Nonlinear relationship between institutional factors and FDI flows: Dynamic panel threshold analysis

We analyze the asymmetric linkages between institutional factors and foreign direct investment (FDI) flows and extend the literature in the following ways. First, we employ a dynamic panel threshold methodology to analyze whether a certain level of institutional quality should be attained to attract more FDI. Second, we use a composite institutional quality index, which includes various measures of institutional quality to identify the overall impact of institutions on FDI inflows. Finally, we consider the effects of the factors such as global liquidity and global risk measure, which gained importance in recent years. Our empirical results based on 126 countries over the period 2002–2012 reveal that institutional quality affects FDI positively only after this measure exceeds a certain threshold value.

The Effects of Bad Institutions on Economic Growth Investigating the Case of Latin American and Sub-Saharan Economies Prior to the World Economic Downturn

Current empiricism provides sparse evidence on the incidence of bad institutions on economic growth in developing countries. This paper tries to fill up this gap by experimenting with a broad data set comprising of 45 economies pertaining to Latin America and sub-Saharan Africa while using Kaufmann et al. (2005 and 2007) indices of institutional quality in several endogenous growth equations prior to the downturn of the world economy. An endogenous growth model is proposed and augmented with institutional quality variables to track idiosyncratic elements in obstructing growth. After performing a battery of econometric tests, our major findings unravel that not only does institutional capital play a fundamental role in fostering economic growth in developing countries, but the latter badly need drastic public sector reforms to render their public sector more vibrant, effective, market friendly and growth perpetuating.

A Comparative Perspective on Institutional Quality in Countries at Different Stages of European Integration

AbstractThe paper investigates changes in institutional quality in countries at different stages of European integration over the seven‐year period from 2004‐11. It analyses two countries of the European Neighbourhood Policy (ENP) region, two from the Western Balkans and two EU Member States from South East Europe. The analysis reveals differences between the country groups in the extent of institutional convergence, in perceptions of corruption and in the pace of democratic consolidation. Analysis of changes in a newly constructed index of institutional quality in the public sector reveals a further falling behind the EU in some key dimensions. We conclude that the EU did not play an important role as a ‘transformative power’ in the two ENP countries over the period up to 2012, and that the process of institutional reform was incomplete due to an absence of a clear European perspective.

The Impact of Institutional Environment on Wealth and Economic Development: Cross-Country Comparisons

This paper analyses hypotheses about the impact of the quality of the institutional environment for economic development and wealth. Qualitative and quantitative characteristics of that dependence are also considered in this paper.International indices, ratings and ranking of countries according to parameters of quality of the institutional environment are used as indicators of the quality of the institutional environment. Consistency of the different rating grades are considered in this paper and an integrated index of institutional quality are produced. On the basis of this integrated index there were found correlations between institutional settings, level of welfare and economic growth.Results show statistically significant connections between wealth and the quality of the institutional environment. Connection between the institutional environment and economic growth is more complicated. Refs 20. Figs 3. Tables 3.

Institutional Drivers of Capital Flows

This paper empirically analyzes the role of institutional factors in shaping the dynamics of gross capital flows. We build an institutional quality index and test its relevance for both gross capital inflows and outflows using a panel of 56 countries, differentiating between high-income and low-income economies, over the period 1996-2012. We find that institutional quality is a significant factor affecting the behavior of both foreign and domestic investors. Countries with better governance and public sector credibility tend to attract more flows. Causality is confirmed through IV estimates for a sub-sample of 25 countries. In addition, we show that some governance features matter more than others. Specifically, the most relevant institutional indicators are Government Effectiveness and Regulatory Quality, which capture the government’s ability to implement adequate, sound and credible policies. Finally, we assess the role of institutional quality during periods of financial stress. The analysis suggests that domestic investors in countries with a sound institutional framework tend to retrench more capital, mitigating the negative effects of declining gross capital inflows. Therefore, sound institutions incentivize the build-up of external assets in high-income countries by promoting larger outflows in normal times. They also facilitate the repatriation of such assets during crises.

FIRM PRODUCTIVITY AND INSTITUTIONAL QUALITY: EVIDENCE FROM ITALIAN INDUSTRY

ABSTRACTThis paper aims to contribute to the debate on the determinants of differentials in firms’ productivity. We test the hypothesis that macro factors, especially the quality of local institutions, play a central role in explaining firm productivity in Italy. To this end, we construct measures of Total Factor Productivity (TFP) for about 4,000 firms by means of different estimation techniques, and a province‐level index of institutional quality. Then, we estimate the relationship between institutional quality and firm‐level TFP. Our results show that the existence of better local institutions might help firms to become more productive.

PENGARUH KEBIJAKAN MAKROEKONOMI DAN KUALITAS KELEMBAGAAN TERHADAP FOREIGN DI¬RECT INVESTMENT DI ASEAN 6

Foreign Direct Investment (FDI) flow is one of the most important factor in the era of glob­alization. FDI in domestic receives extraordinay attention due to FDI could expand the production and enchance the performance of financial market. In the atmospher of globali­zation, FDI is one of the tools for developing countries to increase their economy. This re­search aims to analyze the factors the influence FDI capital inflow into ASEAN countries, i.e. Indonesia, Singapore, Malaysia, Thailand, Philippines, and Vietnamin 2000-2012. This research is using the methods of analysis panel data to determine the factors that influence the FDI inflows in ASEAN-6. The factors that influence FDI inflows are Gross Domestic Product, Macroeconomics policy index, institutional quality index, and labor force ratio. Based on the analysis panel data result shows that Gross Domestic Product, Macroeco­nomics policy index, institutional quality index have positive and significant impacts to FDI in ASEAN-6.

Quality of institutional care and early childhood development

Institutional rearing adversely affects children’s development, but the extent to which specific characteristics of the institutional context and the quality of care provided contribute to problematic development remains unclear. In this study, 72 preschoolers institutionalised for at least 6 months were evaluated by their caregiver using the Child Behavior Checklist and the Disturbances of Attachment Interview. Distal and proximate indices of institutional caregiving quality were assessed using both staff reports and direct observation. Results revealed that greater caregiver sensitivity predicted reduced indiscriminate behaviour and secure-base distortions. A closer relationship with the caregiver predicted reduced inhibited attachment behaviour. Emotional and behavioural problems proved unrelated to caregiving quality. Results are discussed in terms of (non)-shared caregiving factors that influence institutionalised children’s development.

Institutional quality dataset

AbstractIn this paper, we emphasize the role of institutions as the underlying basis for economic and social activity. We describe and compare different institutional classification systems, which is rarely done in the literature, and show how to empirically operationalize institutional concepts. More than 30 established institutional indicators can be clustered into three homogeneous groups of formal institutions: legal, political and economic, which capture to a large extent the complete formal institutional environment of a country. We compute the latent quality of legal, political and economic institutions for every country in the world and for every year. On this basis, we propose a legal, political and economic World Institutional Quality Ranking, through which we can follow whether a country is improving or worsening its relative institutional environment. The calculated latent institutional quality measures can be especially useful in further panel data applications and add to the usual practice of using simply one or another index of institutional quality to capture the institutional environment. We make the Institutional Quality Dataset, covering up to 197 countries and territories from 1990 to 2010, freely available online.

Finanse a długookresowy wzrost gospodarczy – rola instytucji formalnych i nieformalnych

The paper aims to empirically analyze the effect of the quality of the formal institutional environment and social capital on financial development and long-run economic growth for a sample of developed and developing countries using the Generalized Method of Moments (GMM) for the period spanning from 1980 to 2009. The author sets out to find out if there is a synergetic effect between financial sector development and: first, formal institutional aspects measured by the institutional environment quality index, second, informal institutional aspects measured by the level of social capital in society. The article examines if the qualities of formal institutions as well as the level of confidence and cooperation between individuals are important to promoting financial sector and consequently long-run economic growth. The main results of the model are that (i) the development of formal institutions with a higher level of general institutional quality has a positive impact on long-run economic performance through the development of financial markets; (ii) the effect of financial sector development on long-run economic growth also depends on the state of informal institutions with a higher level of trust between individuals.

Cyclical Properties of Macroeconomic Policy in Oil-Reach Country (Draft)

The study, I investigate the cyclicality properties and relative effectiveness of monetary and fiscal policy for 13 oil exporting country during 1993-2011 by pool model. The paper presents evidence that supports the link between an Index of Institutitunal Quality (law and order, government stability, investment profile, etc.), the cyclicality of macroeconomic policy, and the volatilities of output and the iii) relative effectiveness of fiscal policies in oil-exporting countries. The main finding is that macroeconomic policy is significantly pro-cyclical in countries where institutions exhibit low quality. Empirical result show that during 1993-2011 period resource-rich countries that exhibited institutional quality index averages above the threshold range in Iran, Kazakhstan, Kuwait, Norway, Saud Arabia, UEA and Russia. Finally, we find that the effect of fiscal policy on economic cycle first than monetary policy, because of monetary policy obeys the fiscal goals so money supplies to be high in booming and has positively correlation with the cycle. But monetary policy has greater influence than fiscal policy. The paper shows that focused countercyclical macroeconomic policies are feasible in oil-dependent countries.

Institutional Quality, Economic Growth and Fluctuations of Oil Prices in Oil Dependent Countries: A Panel Cointegration Approach

The principle aim of this investigation is the study of fluctuations of oil prices impacts on economic growth of oil-dependent countries with respect to institutional quality. For this purpose we use panel cointegration methodology and error-correction model for 32 oil abundant countries covering the period 1975-2010. The result implies that fluctuations of oil prices impact on economic growth of countries depend on institutional quality index so that the impact of fluctuation is avoided by countries with sufficiently good institutions. More ever, the long-run ratio of investment to products effect is negative and small that shows the quality of investment projects is more importance than the quantity of them in the economic growth of these countries. The effect of trade openness on economic growth in the long-run is positive, statistically significant, and economically sizable.

The Quality of Latin American Institutions

Faced with institutional competition, accelerated by the process of globalization, countries have basically two options: participate in it and get their benefits or isolate themselves and be left aside. With a few exceptions, Latin American countries have not been able to cope with competition and are lagging behind. In this article an attempt will be made to evaluate the quality of Latin American institutions in terms of macroeconomic stability and the rule of law through the building of a composite index called “Institutional Quality Index”, averaging together indexes evaluating economic and political issues, trying to capture the essence of institutional arrangements that have allowed countries to progress and showing whether Latin America’s institutions are able to compete in the world arena. It will be concluded that small countries, such as Chile and some islands on the Caribbean and Central America, get better qualifications than larger countries in the region. This may be explained by the fact that their size forces them to be open economies where contracts and property rights are enforced, since their economies would not be self-sustainable if closed. Also, the “heritage” of legal systems such as the British “common law” shows that some countries could get a better performance of justice as shown by, for example, the high qualifications of some Caribbean countries as compared to others in Latin America that inherited the legal systems of Spain or Portugal. A few recommendations follow.

A New Way to Link Development to Institutions, Policies and Geography

The paper aims to examine the role of institutions relative to economic policy and geography in explaining the differential level of development across countries over time. To that end, it attempts to construct a Development Quality Index (DQI) and an Institutional Quality Index (IQI) using multivariate statistical method of principal components. It shows that (i) higher level of IQI along with economic policy and geography factors lead to a positive improvement in the level of DQI; and that (ii) results remain robust for IQI and relatively robust for economic policy and geography even when it is compared across cross-section and panel data estimation for a set of 102 countries over 1980 to 2004. The results strongly indicate that institutions matter in the context of specific economic policy mixes and geography-related factors illustrated by disease burden, etc. It demonstrates that relative influence of institutions varies across stages of development.

What drives international financial flows? Politics, institutions and other determinants

This paper uses a large panel of financial flow data from banks to assess how institutions affect international lending. First, employing a time varying composite institutional quality index in a fixed-effects framework, the paper shows that institutional improvements are followed by significant increases in international finance. Second, cross-sectional models also show a strong effect of initial levels of institutional quality on future bank lending. Third, instrumental variable estimates further show that the historically predetermined component of institutional development is also a significant correlate of international bank inflows. The results thus suggest that institutional underdeveloped can explain a significant part of Lucas [Lucas, Robert E. 1990. “Why Doesn't Capital Flow from Rich to Poor Countries?” American Economic Review (Papers and Proceedings), 80 (2): 92–96. 1990] paradox of why doesn't capital flow from rich to poor countries. The analysis also does a first-step towards understanding which institutional features affect international banking.

Economic Development: Evidence from Directed Acyclic Graphs

We use directed acyclic graphs to study post‐1970 cross‐section data from 79 world economies and a subset of 59 less developed economies. Openness to trade, government savings and natural resource exports are direct causes of GDP growth rate. Openness to trade and government savings contribute positively and natural resource exports contributes negatively to growth rate in GDP. An institutional quality index, agricultural productivity, life expectancy, initial GDP and a tropical climate dummy are related to but are not direct causes of GDP growth rate in one or more versions of the models uncovered. Implications on modeling are explored.

Undergraduate achievement and institutional "excellence". Traditional indices of institutional quality do not appear to contribute to student achievement.

Undergraduate achievement and institutional "excellence". Traditional indices of institutional quality do not appear to contribute to student achievement.