The Effect of Economic and Political Institutions on Economic Growth: The Case of Developed Countries and Emerging Market Economies

Ahmet Burak Çetin ()

Bulletin of Economic Theory and Analysis, 2019, vol. 4, issue 2, 1-31

Abstract: Why so few countries able to establish economic growth institutions? In order to answer this question, it is necessary to analyze the institutional elements that create behavioral patterns among the economic agents interacting with each other. Institutions reveal the volume of existing interactions and the benefits of economic change by affecting the economic growth. Economic and political institutions support economic growth as they shape the incentives of economic actors in society and affect investments in technology and physical and human capital. Within the scope of the study, economic and political institutions have been accepted as determinants of economic performance by applying the methodological foundations of the New Institutional Economics approach. In this study, the effects of economic and political institutions on economic growth analyzed by using data covering the years 2002-2016. The effect of economic and political institutions on economic growth, that are the main measurement targets of the study, has been considered within the scope of two different models by distinguishing between Developed Countries and Emerging Market Economies. The effect of institutions on the economic growth examined by using the Panel data analysis and the applicable Feasible Generalized Least Squares (FGLS) estimator. In this study, Heritage Foundation Economic Freedom Index used for the measurement of economic institutions and World Governance Index used for the measurement of political institutions. The results of the analyzes indicate that economic and political institutions are positively related and statistically significant for the Developed Countries and Emerging Market Economies’ economic growth.

Keywords: Institutional Economics; Institutions; Political Institutions; Economic Growth; Panel Data Analysis (search for similar items in EconPapers)
JEL-codes: B52 D02 E02 O43 (search for similar items in EconPapers)
Date: 2019
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