Does Institutional Quality Strengthen the Globalization-Growth Nexus?

A Cross Country Analysis1

Shahid Ali, Ph.D.

Assistant Professor| Department of Economics and Development Studies,
University of Swat
Email: [email protected]

Naved Ahmad, Ph.D.

Instructor | Donald School of Business, Science, and Computing
Red Deer Polytechnic | 100 College Blvd.
Box 5005 | Red Deer | Alberta | T4N 5H5
Email: [email protected]

Lala Rukh, Ph.D.

Lecturer| Center for Management and Commerce,
University of Swat
Email: [email protected]

ABSTRACT

In this study, we examine the role of institutional development in the globalization

growth nexus. We have used the System GMM technique for a sample of 124 countries from
1996 to 2020. We find that countries with improved quality of institutions get more from
economic globalization. Hence, policy complementarities are the pre-requisites for the
relationship between economic globalization and growth. We use marginal effect analysis and
find a minimum threshold level of institutional quality. We also perform sensitivity analysis by
comparing the results of the different econometric techniques. Consequently, we run hundreds of
regressions with various growth models to get the most stable and robust model.

Key Words: Economics Globalization, Institutional Development, Dynamic Panel

1. INTRODUCTION

Institutions are the "rules of the game" in a society (North, 1990) and are the key to
economic growth (Acemoglu and Robinson, 2012). The role of Institutional quality in affecting
growth performance has been extensively investigated in the literature (Acemoglu, 2001 and
2002, Easterly & Levine, 2003, Frankel & Romer, 1999, Cheng and Mittelhammer, 2008,
Murtaza and Faridi, 2016). Well-functioning institutions have positive effects on growth.
Pluralistic political institutions are also the sources of technological innovation and the critical
engines of steady economic progress as the citizens have incentives to invest or innovate
(Acemoglu and Robinson, 2012). Institutions provide a way for technologically lagging
countries to catch up with their leaders (Olofsdotter 1998). Countries with high-quality
institutions provide fundamental rights to their citizens to invest and innovate in an environment

1
The earlier version of this paper is appeared in Research Square on February 3rd, 2021. DOI:
: https://doi.org/10.21203/rs.3.rs-178902/v1

1
where they can protect their property rights and make their decisions and choices (Doan, 2019).
Contrarily, specific institutions may threaten the citizens as most of their output will be
expropriated by the governing elite (Acemoglu and Robinson, 2012). Therefore, weak
institutions have adverse effects on growth because it misallocates resources. In those
environments, the qualified labor force immigrates to other countries. Low-quality institutions
possibly create an environment harmful to investments and discourage international trade. On the
other hand, high-quality institutions play a significant role in reducing uncertainty and ultimately
enhancing efficiency. (Nguyen et al., 2018).

Literature duing the last decade of the 20th century showed a remarkable change in
defining macroeconomic variables and investigated the growth literature extensively, but lacks
consistent estimation procedures and ignores the pivotal role of institutions. (Chang & Lee, 2010,
2011). The institutional economists further extended the work on growth determinants by
considering institutional variables in growth models and argued that institutions with good
governance and management backgrounds promote growth (Acemoglu et al. 2001, and 2002;
Easterly & Levine, 2001; Frankel & Romer, 1999; North and Weingast, 1989).

Both theoretical and empirical studies generally concluded that strong institutions
promote economic growth. (Murtaza and Faridi 2016). However, contrary to the existing finding
on the economic growth and institutional development connection, Glaeser et al. (2004) found
that political institutions are vital for promoting economic growth. They also explained that
improved political institutions due to sound economic policies could increase the level of
income. Consequently, political institutions can have enduring effects on income through
indirect channels (Bosco and Poggi, 2020).

There is a debate in the literature on why some countries benefit more from globalization
than others. One reason for this difference is the various complementary policies and initial
conditions. Globalization also creates a gap between high-income and low-income countries. If
globalization is an engine of economic growth, why do some countries (and not all) gain more
from globalization?”

Cross-country income differences over the past two decades could be attributable to the
complementary policies. In other words, it is not globalization that enhances economic growth,
but its complementarity with institutional quality stimulates economic growth. This study
explores this issue by investigating the role of institutional quality in the globalization-growth
nexus for a sample of 124 countries. Further, the study finds the minimum threshold stock of
institutional quality above which globalization positively affects economic growth.

2. LITERATURE REVIEW

2.1. Institutional Development and Growth

The literature on growth has extensively investigated the determinants of economic

growth during the 1990s. The subsequent literature highlighted the significant role of institutions
(Chang & Lee, 2010, 2011). Consequently, institutional economists have extended the existing
literature on the determinants of growth. These economists included institutional variables in
their growth regressions and argued that strong institutions promote economic growth.
2
(Acemoglu, 2001, 2002, Easterly & Levine, 2001, Frankel & Romer, 1999, Easterly & Levine,
2003, Rodrik et al., 2004, Singh, 2019, Doan, 2019, Behera et al., 2020).

However, contrary to the findings of existing literature, Glaeser et al. (2004) find that
political institutions do not directly affect economic growth. Countries enhance their economic
growth through sound macroeconomic policies, which improve political institutions. There is a
debate regarding the possible relationship between institutional development and economic
growth. The findings are still inconclusive, however. Productivity depends on institutional
quality, and institutional quality depends on corruption that undermines growth. It also increases
the cost of doing business. Finally, institutional quality and growth are positively related.
Blackburn and Forguesuccio (2010), Rodrik (2000). Glaeser et al. (2004) find no robust
relationship between institutions and growth. Glaeser et al. (2004) and Bonnal & Yaya (2015)
find that political institutions do not affect economic growth.

2.2. Globalization Led Growth

The literature on the direct link between globalization and economic growth is quite rich
(Dollar & Kraay, 2002, Dreher, 2006, Grossman and Helpman, 2015, Akpan and Atan, 2016,
Mireku et al., 2017, Keho et al., 2017, Darku & Yeboah, 2018, Huchet‐Bourdon et al., 2018; Ma
et al., 2019, Malefane and Odhiambo, 2019, Nwadike et al., 2020, Bhanumurthy and Kumawat,
2020). These analyses have assumed that different countries are identical in terms of institutions.
But the economic structure and characteristics of countries may not be homogenous over time.
Therefore, a more relevant cross-country study is needed to examine the relationship between
globalization and economic growth after controlling institutional quality.

The importance of country characteristics in the relationship between globalization and

economic growth has motivated researchers to study conditional globalization. Many studies
have investigated the globalization-growth nexus under different conditions. The findings of
those studies such as Chang et al. (2009), Zahonogo (2018), Bonnal & Yaya (2015), Calderón &
Fuentes (2006), Freund and Bolaky (2008) have been subject to criticism in terms of proxy used
for trade openness. The majority of the existing studies have focused on the ex-post measurable
definition of globalization. Hence, these studies are narrow as they have used an
incomprehensive trade openness index only.

2.3. The Interplay among Economic Globalization, Institutions and Economic

Growth

Concerning the role of institutional quality in the host country on the globalization and
growth nexus, the literature is not very rich. Few authors investigated the conditional aspect of
institutional quality in the host country in the globalization-growth nexus (Sindzingre, 2005,
Dollar and Kraay, 2002, Rodrik, 1999, Stensnes, 2006, Lee et al., 2015, Samimi and Jenatabadi,
2014, Hartman et al., 2017 and Duodu et al.,2020). The focal point of his research was the
existence of a strong interaction between trade and institutional development. The author argues
that open economies with weak institutions may not be able to absorb external shocks. Working
on Rodrik’s framework, Stensnes (2006) argued that openness exposes economies to external
shock. It negatively affects growth if the quality of institutions is low. Sindzingre (2005)

3
examined the nonlinear relationship between globalization and poverty. The author found that
the institutional quality determines whether the benefits of openness are equally distributed. The
study presented by Dollar and Kraay (2002) highlighted the interaction effect of globalization
and institutional quality. The authors argued that countries with inclusive institutions benefit
more from a globalization process. Quality institutions help a country attain sustained growth.
Klein (2003) provided empirical evidence on institutional quality in the linkages between
openness and economic activity. The author found that institutional quality enhances economic
growth.

To sum up, unfortunately, limited studies have explored the interaction effect of
globalization and institutions. In this study, we go beyond the conventional globalization growth
dynamics by challenging the assumption of homogenous institutions across countries. This study
interacts the globalization measure with proxies of institutional development.

3. CONCEPTUAL FRAMEWORK AND MODEL SPECIFICATION

3.1. Conceptual Framework

The basic theme of this study is that economic globalization may affect economic growth
through institutional development. Complementarity between globalization and institutional
development is crucial for economic growth. It is not globalization that enhances economic
growth but the quality of institutions of the host country that stimulate economic growth due to
globalization. Hence, the preconditions of a country stimulate economic growth through
globalization. Figure 1 shows the logical relationship between these variables.

4
 Economic Globalization
Complementarity
between
Institutional
development &
Economic
Globalization
Institutional Development Reducing
Uncertainty

Formal Informal

Protection of Knowledge and Investment and

Property Rights Idea Sharing Innovation

Investment and
Economic Growth
Innovation

Figure 1: Conceptual Framework

The present study uses a dynamics model of economic growth equation, based on the
augmented Cobb-Douglas production function framework, across countries over time. The base
equation with economic globalization incorporated as one of the factor inputs is:

y ¿ =β 0+ β1 KOF ¿ + β 2 X ¿ + v ¿ (1a)

Where i and t refer to the country i at time t; βi are the parameters; yit is the GDP per capita
growth rate for country i at time t, KOF is the proxy used for economic globalization and X is the
vector of growth determinants.

In the next step, we add the initial GDP per capita (Yo) in equation (1a) to test the convergence
hypothesis.

y ¿ =β 0+ β1 KOF ¿ + β 2 X ¿ + β3 Y o +v ¿ (1 b)

Following Sala-i-Martin (1997), the model specification includes the convergence

variable such as initial per capita income and measures of economic globalization, and other
control variables. υit is the residual.

The absolute convergence theory argues that a less developed country tends to grow at a
rate that is inversely proportional to its initial GDP per capita. The initial per capita is included in
the empirical growth model, keeping in view the convergence condition. Notwithstanding, the
literature supports this hypothesis for homogenous groups of countries.

5
 To capture the impact of globalization on economic growth in the presence of
institutional variables and other control variables, we use the following equation:

y ¿ =β 0+ β1 KOF ¿ + β 2 X ¿ + β3 Y o + β 4 INS¿ + β 5 Z ¿ + v ¿ (1c )

Where INS represents institutional quality and Z is the vector of variables comprised of
economic indicators (e.g., financial deepening, technological innovation, economic
opportunities, and economic freedom). X is the set of control variables such as investment and
inflation. To examine the role of institutional quality in the globalization-growth nexus, we add
an interactive term in model 1c as follows:

y ¿ =β 0 + β 1 Y o + β 2 KOF ¿ + β 3 X ¿ + β 4 INS¿ + β 5 Z ¿ + β6 ( KOF ¿∗INS ¿ )+v ¿ (1d)

This study interacts the globalization measure with proxies of institutional indicators and
economic indicators, respectively. In this model, the interaction term tests whether there is
complementarity between globalization and other institutional and socioeconomic factors that
affect economic growth. The empirical model (1d), which departs from the previous studies, is
re-written as:

y ¿ =β 0 + β 1 Y o + β 2 KOF ¿ + β 3 INF ¿ + β 4 INV + β 5 INS¿ + β 6 FD¿ + β 7 EF ¿ + β 8 HTE ¿ + β 9 INN ¿ + β 10(KOF ¿∗INS ¿ )+ v ¿

(1d)'

4. DATA AND ANALYTICAL TECHNIQUES

We use panel data for 124 countries 2 from 1996 to 2020. The data on the KOF
globalization index is taken from Gygli et al. (2019), and the composite index of institutional
quality (INS) is taken from Worldwide Governance Indicators (WGI). The data for the rest of the
variables such as GDP per capita growth rate (yg), Inflation (INF), Investment (INV), Hi-tech
Exports % Manufacturing Exports (HTE), Economic Freedom Index (EFI), Financial
Development (FD) and Innovation (INN) are taken from World Development Indicators.

To empirically test the relationship between globalization and economic growth in the
presence of institutional quality and other control variables, this study uses the system GMM
estimator. The GMM estimator provides more accurate estimates than the difference GMM,
fixed effect, and OLS. Dollar and Kraay 2002; Eicher and Leukert 2009 developed this technique
to tackle the endogeneity problem in the cross-sectional growth equations. The dynamic panel
data model estimates the growth equations by addressing the endogeneity problem. (Bonnal and
Yaya, 2015).

5. RESULTS AND DISCUSSION

We estimate the complementarity between economic globalization and institutional

quality. We calculate different models via the GMM method. The institutional quality index
significantly affects growth rates in all specifications and supports Easterly & Levine's (2003)
findings. Hence, it concludes that institutions with good governance and management
2
List of countries is provided in appendix A.

6
backgrounds promote growth. Countries with high-quality institutions provide basic rights to
their citizens to invest and innovate in an environment where they can protect their property
rights and make their decisions and choices. Therefore, institutional development is a vital factor
in improving people's well-being. In the model, without the interaction term, KOF has a
significant positive coefficient. However, once we consider the interaction term, the sign of KOF
becomes negative. The interaction term (KOF*INST) enters the model positively and statistically
significant; it implies that countries with developed institutions benefit from globalization. These
results support Zahonogo's (2018) findings, who argues that globalization alone is not enough to
ensure that a country will experience sustainable development. Additional policies are required
to enhance their impact on growth. This empirical inference supports our theoretical insight that
the progress made in institutional development strengthens the economic globalization-growth
nexus.

To put it differently, countries with inclusive institutions get more benefits from the
process of globalization. For sustained economic growth through globalization, there should be
quality institutions. The results confirm the findings of Dollar and Kraay (2002), Freund and
Bolaky (2008), Calderón and Fuentes (2006), and Klein (2003). Further, the control variables
(INF, INV, FD, EF, HTE, and INN) are statistically significant and have managed to meet their
predicted signs in the case of a complete sample.

7
Table 1 Economic growth and the interaction between Economic Globalization and
Institutional Quality

High Income Upper Middle Lower Middle- &

Full Sample
Group Income group Lower-Income Group
Without With
With Without With Without Without With
Interactio Interactio
Interaction Interaction Interaction Interaction Interaction Interaction
n n
Yo -
(Initial GDP per -0.241* -0.084* -0.114* -0.194* -0.491*** 0.140** -0.116** -0.106**
capita) (0.002) (0.003) (0.004) (0.010) (0.046) (0.055) (0.014) (0.046)
KOF - -
Economic 0.019* -0.044* 0.041** -0.049 0.019 0.100** -0.1149* 0.016***
Globalization Index (0.004) (0.009) (0.011) (0.011) (0.045) (0.046) (0.019) (0.064)
-
INF
-0.026* -0.038* 0.004 0.005 -0.010 0.040** 0.0001 0.007
Inflation rate (0.001) (0.001) (0.005) (0.006) (0.014) (0.009) (0.011) (0.019)
INV 0.071* 0.096* 0.064* 0.149* 0.064* 0.064* 0.040* 0.015***
Investment (0.000) (0.002) (0.015) (0.014) (0.006) (0.006) (0.004) (0.009)
INST
Institutional 0.341** 0.652** 0.146* 0.114** 0.766** 0.456 0.766 0.711
Development (0.025) (0.047) (0.004) (0.019) (0.045) (0.161) (0.169) (0.119)
FD -
Financial -0.053* -0.059* -0.016* -0.011* -0.060** 0.117** -0.114** -0.116**
Development (0.000) (0.002) (0.001) (0.004) (0.016) (0.017) (0.011) (0.046)
EF
Economic Freedom 1.526** 1.435** -1.664** -1.064** 1.461** 4.617** 1.161** 1.106***
Index (0.015) (0.014) (0.014) (0.016) (0.071) (0.061) (0.019) (0.074)
-
HTE
0.138* 0.202* 0.041*** 0.064** 0.149** 0.090** -0.066** 0.074***
Hi-tech exports (0.007) *(0.012) (0.061) (0.019) (0.014) (0.047) (0.046) (0.060)
INN 0.001* 0.0002* 0.744** 0.495** 0.154*** 0.045* -0.066 0.069
Innovation (0.000) (0.000) (0.016) (0.044) (0.066) (0.006) (0.337) (0.371)
0.136* 0.164* 0.00* 0.169*
KOF*INST --- (0.007) -- (0.005) -- (0.001)
--
(0.001)
N 124 124 48 48 35 35 41 41
Sargan test 92.43 90.63 23.22 48.11 21.28 19.84 20.40 18.58
Instrumental Rank 99 99 200 199 27 27 31 31
AR(1) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
AR (1) 0.40 0.43 0.22 0.31 0.38 0.22 0.55 0.61

Dependent Variable: Growth Rate of per capita GDP. Values in the parenthesis are standard
errors. * and ** indicate p-value less than 1 and 5 percent respectively.

Figure 1 shows the moderating effect of institutional development on economic growth.

We divide a sample of 124 countries into nine (3*3*3) groups according to the level of economic
globalization and institutional development (measured by a composite index for institutional
quality). Figure 1 shows that the effect of economic globalization on economic growth is
profound with high institutional development3.

3
We construct the 3D graph by using MATLAB 2015a.

8
Figure 1. Interaction between Economic Globalization and Institutional Development

Sensitivity Analysis:

We perform sensitivity analysis by comparing the results of the different econometric

techniques. Moreover, we ran hundreds of regressions with various specifications to get the most
stable and robust model that is not sensitive to various estimation techniques. Table 8 suggests
that one step GMM estimator is superior to the pooled OLS, Fixed effect, and Difference GMM
estimator in terms of consistency and efficiency.

It is evident from table 2 that the OLS method overestimates the coefficients, but the
difference GMM is systematically biased downwards. The System GMM estimator is the best
performing and less biased. Further, in line with the Monte Carlo experiment and OLS, the
estimated coefficient of the KOF is less than the estimated coefficients of system GMM and
difference GMM; however, the OLS estimators systematically tend to give larger standard errors
than System GMM estimators. Moreover, the System GMM estimators tend to give larger
coefficients with smaller variance than the OLS, Fixed Effect and Difference GMM estimators (-
0.861*> -0.115** > -0.311** > 0.635**). The estimated coefficient of transitional convergence
variable (Y0) applying OLS is larger than the estimated coefficients of system GMM and
difference GMM; however, the difference GMM estimators systematically tend to give larger
coefficients and larger standard errors than System GMM estimators (-0.553** > -0.081*).

Difference GMM overestimates the coefficient for the transitional convergence variable
(Y0). The result confirms the findings of Nickell (1981) and Bond et al. (2001). The J statistic
(and its p-value) confirms that the instruments used for the estimation are valid. Hence, it
concludes that the instrumental variables are exogenous. From table 2, we cannot reject AR (1)
but reject AR (2), which implies that the models are free of serial correlation.

9
 To sum up the sensitivity analysis, we conclude that the system GMM is the best-
performing estimate because of its accuracy. Difference GMM overestimates the coefficient for
the transitional convergence variable (Y0). It also suffers from the measurement problem.

Table 2 Growth Panel Regressions: Robustness (Dependent Variable: Growth rate in GDP
Per Capita)

Fixed
One Step Two Step 1st 3nd
Pooled Effect
System System Difference Difference
OLS (Within
GMM GMM GMM GMM
Group)
Core Variable
KOF -0.635** -0. 311** -0.861* -0.718* -0.115** -0.542**
Index of economic
Globalization
Control Variable
Yo
-0.381** -0301* -0.073* -0.081* -0.553** -0.503**
Initial GDP per capita, log
INF
-3.314** -3.381** -3.003 -3.221* -1.801** -1.542**
Inflation rate, log
INV
Investment (in percentage of 0.313*** 0.327*** 0.513* 0.452** 0.531*** 0.533***
GDP), log
Variable of Interest
HTE 0.331** 0.301* 0.813** 0.808* 0.878** 0.781*
Hi-tech exports (percent of
manufacturing exports), log
EF 0.423* 0.613* 0.623* 0.342** -0.542** 0.201**
Economic Freedom Index, log
FD 0.456** 0.226** 0.613*** 0.411* 0.238** 0.365***
Financial Development as
percent of GDP, log
INST 0.581* 0.453*** 0.885* 0.871** 0.754*** 0.532*
Institutional Quality Index, log
INN 0.465*** 0.276* 0.733** 0.677* 0.831*** -0.881**
Innovation (Number of patents,
log)
Interaction
KOF*INST 0.003** 0.002** 0.015** 0.016** 0.038** 0.031**
Number of Countries 132 132 132 132 132 132
Sargan Test 57.42 52.65 61.11 57.15 47.23 51.01
AR(1) 0.000 0.000 0.000 0.000 0.000 0.000
AR(3) 0.331 0.345 0.165 0.316 0.163 0.186
Regression includes constant. ** (*) indicates p-value less than 5 (10) percent.

10
6. CONCLUSION

Using panel data, globalization and complementary factors provide some evidence
regarding the dependency of growth effects of economic globalization on the institutional
quality of the sample countries. The study contributes to a growing literature on the
importance of the existence of complementarities. System GMM methods provide robust
results. The effectiveness of globalization depends on the efficacy of the institutions.
Countries with high-quality institutions will benefit from globalization. These results support
the hypothesis that policy complementarities are pre-requisites for the economic
globalization-growth nexus. It is not globalization that enhances economic growth but its
complementarity with institutional indicators that stimulate economic growth. Policymakers
should design policies to improve the institutional quality for reaping the potential benefits
from globalization.

From a policy perspective, countries, where policy complementarities are weak, must
have a strategy to improve their structural and institutional quality. In the absence of strong
institutions, high quality of life, and policies favorable towards the business environment,
returns to economic globalization in terms of growth are likely to be lower than optimal. The
findings of this study have important policy implications. The openness of the economy is
only one part of the story. The other is how to get maximum advantages from trade openness.
Therefore, policymakers should improve the level of structural and institutional factors to get
more opportunities from globalization. The policymakers should also propose policies to
improve the economic opportunities in the host country.

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 7. COMPLIANCE WITH ETHICAL STANDARDS

 Ethics approval and consent to participate

All the participants that helped in this study did so willingly.
 Consent for publication
The authors agreed to have this paper published.
 Availability of data and materials
We provide detail summary of our data, its source and version. Further information may be
provided upon request. The dataset is available in and bought from the following sources.
1. Gygli, et al., (2019): Revised KOF globalization Index, https://doi.org/10.1007/s11558-019-
09344-2_
2. Word Development Indicators (WDI, 2019), https://databank.worldbank.org/source/world-
development-indicators#advancedDownloadOptions
 Funding
We do not have research funding for this paper.
 Authors' contributions
Shahid Ali: Conceptualization, Methodology, and Software
Naved Ahmad: Writing and Editing
Lala Rukh: Editing
 Declaration of competing interest
The authors declare that they have no known competing for financial interests or personal
relationships that could have appeared to influence the work reported in this paper.
 Acknowledgements
'Not applicable'

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Appendix A:

Table A1: Regions wise Classification of Sample Countries

Name of Regions List of Countries (124 Countries)
East Asia and Australia Japan Philippines
Pacific Brunei Korea Singapore
(16 countries) China Macao Thailand
Fiji Malaysia Mongolia Vietnam
Hong Kong New Zealand
Indonesia
South Asia Bangladesh Sri Lanka
(5 countries) India Maldives
Pakistan
Europe and Albania Cyprus Poland Sweden
Central Asia Armenia Estonia Portugal Switzerland
(43 countries) Austria Georgia Iceland Turkey
Azerbaijan Germany Kazakhstan Ukraine
Belgium Greece Kyrgyz Rep. United Kingdom
Bulgaria Hungary Lithuania Luxembourg
Croatia Ireland Russia Latvia
Czech Rep. Italy Slovakia Romania
Denmark Moldova Slovenia Serbia
Finland Netherlands South Africa Tajikistan
France Norway Spain
Middle East and Algeria Jordan Qatar
North Africa Bahrain Kuwait Saudi Arabia
(14 countries) Egypt Lebanon Tunisia
Iran Morocco Yemen
Israel Malta
Latin America and Argentina Ecuador Paraguay
Caribbean Barbados El Salvador Peru
(22 countries) Bolivia Guatemala Trinidad and Tobago
Brazil Honduras Uruguay
Chile Jamaica Venezuela
Colombia Mexico Grenada
Costa Rica Nicaragua
Dominican Rep. Panama
North America Canada
(2 countries) United States
Sub-Saharan Botswana Cameroon Mali Senegal
Africa Mozambique Gambia Mauritius Sierra Leone
(22 countries) Nigeria Ghana Malawi Tanzania
Zimbabwe Kenya Namibia Uganda
Côte d'Ivoire Liberia Niger
Zambia Rwanda
Sudan

17
 Quality of Institutions
1.5

0.5

0
n ... ty i ty w ty ...
ptio ve bili al La bili e ve
-0.5 rru ti a u f a
ec St yQ e
o nt lD
r Co t Eff cal rit R ul cou ona
a
ve en liti ul Ac uti
o l O-1 nm Po R eg of s tit
r r e In
nt ve oi
c ll
Co Go High Income Upper Middle Income V Low Income era
Ov

Figure A1: Comparison of Institutional Development on the basis of Income Groups

1.35
0.85
0.35
-0.15 1996 2000 2004 2008 2012 2017
-0.65

East Asia South Asia

Europe and Centeral Asia latin America & Caribbean
Middle East & North Africa North America
Sub Saharan Africa

Figure A2. Degree of Institutional Quality Across Different Regions

Per Capita Income by Catagories of Institutional Development
35000
30000
25000
20000
15000
10000
5000
0
Above Average Level of Institutions Below Average Level of Institutions

Figure A3. Per Capita Income by Categories of Institutional Quality

18