What matters for growth in Europe? Institutions versus policies, quality versus instability

Niclas Berggren, Andreas Bergh and Christian Bjørnskov

Journal of Economic Policy Reform, 2015, vol. 18, issue 1, 69-88

Abstract: We study how the quality and instability of institutions and policies affect economic growth in 35 European countries. While stability entails valuable predictability, instability can reflect reforms that offer positive long-run consequences. We construct measures of quality and instability for a panel of countries for 1984–2009. Results suggest that the quality of policy is growth-promoting. Notably, this positive effect becomes larger the more unstable policies are. The findings suggest that for European countries, the benefits of policy flexibility – due to experimentation and learning or making rent seeking more difficult – dominate the costs of reduced predictability.

Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:taf:jecprf:v:18:y:2015:i:1:p:69-88

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DOI: 10.1080/17487870.2014.953159

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