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Working Paper No. 135. The Growth Effects of Institutional Instability

PublikationWorking paper
Andreas Bergh, Christian Bjørnskov, Företagandets villkor, Institutionell ekonomi, Niclas Berggren, Osäkerhet, Tillväxt, Transaktionskostnader
Working Paper No. 135.
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Sammanfattning

Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

Related content: The Growth Effects of Institutional Instability

Berggren, N., Bergh, A. & Bjørnskov, C. (2009). The Growth Effects of Institutional Instability. Ratio Working Paper No. 135.

Baserat på innehåll

Working Paper No. 135. The Growth Effects of Institutional Instability
Working paperPublikation
Berggren, N., Bergh, A. & Bjørnskov, C.
Publiceringsår

2009

Sammanfattning

Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

Related content: The Growth Effects of Institutional Instability

The Growth Effects of Institutional Instability
Artikel (med peer review)Publikation
Berggren, N., Bergh, A. & Bjørnskov, C.
Publiceringsår

2012

Sammanfattning

We study the effects of institutional instability on growth. Using principal components analysis, we construct measures of institutional quality and instability from the political risk index of the International Country Risk Guide. A panel-data analysis of 132 countries during 1984–2004 reveals that institutional quality, especially with regard to the legal system and the protection of property rights, is positively linked to growth. As for institutional instability, we find evidence of a positive relationship in rich countries but a negative link in poor countries, suggesting that instability may reduce problems of institutional sclerosis in the former and that instability primarily entails an increase in transactions costs and uncertainty in the latter.
Related content: Working Paper No. 135

Working Paper No. 135. The Growth Effects of Institutional Instability
Working paperPublikation
Berggren, N., Bergh, A. & Bjørnskov, C.
Publiceringsår

2009

Sammanfattning

Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

Related content: The Growth Effects of Institutional Instability

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