Impact of institutions on economic growth across OECD countries
Impact of institutions on economic growth across OECD countries

Summary/Abstract: This paper provides empirical evidence in support of the view that quality of institutionsis an important determinant of medium and long-term growth in OECD countries.Regarding the methodology, a panel data analysis with two-stage least squares (2SLS)estimation will be used to account for the endogeneity of the institutional variable. Besidesinstitutional quality, we also consider other relevant determinants of potential growthsuch as the initial level of GDP per capita, public debt, and structural variables typicallyreferred to in economic growth theory. Our estimation results show a positive impactof institutions on subsequent economic growth: an increase in 1 point in institutionalquality leads to an estimated increase of 16.88 percentage points in potential GDP percapita growth, in the case of high-debt countries. With this, we notice a particular relevanceof institutions in countries with high levels of debt. Therefore, our findingssupport the necessary attention to the institutional tissue of societies since improvementsin institutional quality can subsequently improve economic growth.

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