Sources for the Euro Crisis: Bad Regulation and Weak Institutions in Peripheral Europe

Jacopo Costa () and Roberto Ricciuti
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Jacopo Costa: University of Florence

No 15/2013, Working Papers from University of Verona, Department of Economics

Abstract: We analyze the relationship between the quality of political institutions (Worldwide Governance Indicators) and economic regulations (Doing Business indicators) and the economic performance in a panel of 37 European countries between 2001 and 2011. Our results show that the regulations of business environment have a linear effect on the level of GDP, while political institutions have a non-linear effect (U-shaped). Bad political institutions seem not important when the returns of capital accumulation are high, whereas when the gains from the latter are exhausted, political institutions become crucial for further growth. These results allow us to better understand the differences between peripheral and central countries in Europe, and to identify these pre-existing differences as a source of instability in the EMU.

Keywords: European Monetary Union; Worldwide Governance Indicators; Doing Business; economic institutions; political institutions (search for similar items in EconPapers)
JEL-codes: E02 O43 O52 (search for similar items in EconPapers)
Date: 2013-09
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Citations: View citations in EconPapers (3)

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