Dynamic Effects of Changes in Governance Quality

Julien Guigue and Gábor Kátay

No 248, European Economy - Discussion Papers from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper analyses the dynamic economic impact of changes in governance quality across six key dimensions. Using local projections, we examine whether these changes induce long-term growth effects or result in gradual level shifts in GDP per capita. The findings reveal significant but heterogeneous impacts. While Government Effectiveness, Rule of Law, and Control of Corruption act as drivers of sustained economic growth by permanently increasing long-run growth rates, dimensions like Regulatory Quality and Political Stability lead only to gradual level shifts, moving economic output to a higher permanent level without altering long-term growth rates. Historical analysis of governance changes highlights stark regional differences: Emerging Europe, Post-2004 EU Member States, and non-European developed countries have benefited substantially from governance improvements, whereas Pre-2004 EU Member States, non-EU developed European countries, and regions such as Central and South America, Africa, and Emerging Asia have exhibited comparatively weaker governance dynamics and, consequently, GDP per capita growth.

JEL-codes: C33 E27 H11 O11 O43 O47 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:euf:dispap:248

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