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The effects of poor institutional quality on economic growth – investigating the case of Sub-Saharan and Latin American economies prior to the world economic downturn

Sanjeev K. Sobhee

Economic Thought journal, 2017, issue 1, 69-82, 83-95

Abstract: Current empiricism does not reveal much how low quality institutions hamper economic growth in developing countries, and which particular form of institutional failures harms more. This paper fills up this gap by experimenting with a broad new data set on institutional quality comprising 42 economies pertaining to 30 Sub-Saharan Africa and 12 Latin America. Six indicators of institutional quality from Kaufmann et al. (2005 and 2007 databases) are used in several endogenous growth equations prior to the downturn of the world economy. After performing a battery of econometric tests, our major findings unravel that, besides improving institutional capital, developing countries must imperatively adopt drastic public sector reforms to foster economic growth. Moreover, a more vibrant public sector, free from corruption, which adopts market friendly policies, and ensures a more effective delivery of public services would indeed be growth perpetuating.

Date: 2017
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