Governance, Culture And Democracy: Institutions And Economic Development Of Eu Member States

This paper intends to understand the major institutional factors related to the economic development of the European Union (EU) countries in the last two decades. It provides some contributions to the institutionalist debate of the present crisis of the European Union, and within it, the Economic and Monetary Union (EMU). The two main issues of the empirical research are the effect of the different institutions on economic growth and the relative importance of institutions compared with the traditional macroeconomic components of economic development. The institutionalist tradition of comparative political science and political economy as well as institutional economics define the framework of interpretation. The analysis sheds some light on the relationship between economic development and the different institutional dimensions, namely the legal environment, political institutions, public policy institutions (governance) and the informal institutions, the cultural components of the economic-political behaviour. The empirical research examines the development pattern of the European Union countries between 1993 and 2011 as well as the relationship between economic development and institutional quality in that period by descriptive and explanatory statistical methods. The results reveal strong relationship among the different aspects of institutional quality in the EU countries; within Europe we cannot observe a Singaporean type contradictory constellation between the quality of democratic institutions and public policy effectiveness. The path of European development has been drawing a conspicuously strong correlation among the different institutional dimensions: the high quality of democratic institutions, the respect of the rule of law and property rights and the effective governance are going hand in hand with the growth-supporting components of the culture. In cultural terms, the high level of trust, respect and self-determination as well as the lack of obedience ensure the most successful long-term growth pattern in Europe. Another important finding is that the EMU countries are conspicuously heterogeneous in their institutional quality and the Mediterranean members of the Euro area are institutionally closer to the non-EMU-member Central-Eastern European countries than the core EMU countries. Concerning the economic policy consequences, the heterogeneity of the informal institutions fundamentally challenges the effectiveness of the approach of stronger harmonisation by stricter formal rules and stricter sanctions against the norm-breaking Euro area members.