Institutions and Economic Growth: A Comparative Analysis of Developing and Developed Countries based on Institutionalized Social Technologies Index

Abstract

This paper used index of institutionalized social technologies (lIST) developed by Siddiqui and Ahmed (2018) as a proxy of institutions quality, to analyse their impact on Economic growth. This index was made up of two sub-indices namely Risk reducing technologies and Anti Rent seeking technologies. The cross sectional analysis covered 141 countries. The values are taken as average of the period of 1990 to 2008. The effectiveness of these indices is tested in growth models along with other variables such as inflation, human capital, savings and trade. It also factors in initial conditions to measure signs of convergence. OLS and GMM based methodologies are employed for estimation. The findings are robust and consistent. Institutional quality is positively associated with economic growth suggesting that institutional reforms such as minimizing corruption, strengthen property rights, improving law and order conditions, and enforcing contracts can leads to economic growth. Moreover, the impact of institutions on growth is more pronounces in high income countries, showing institutions are also crucial for sustenance of growth. Among the two forms of institutions, the risk reducing technologies affect economic growth considerably more than anti-rent seeking technologies. The results also confirm conditional convergence as predicted in the modern theories of growth. Overall, these results suggest that effectiveness of institutional reforms would depend upon how these institutions impact growth.