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Institutions and economic performance: What can be explained?

Author

Listed:
  • Simon Commander

    (IE Business School, EBRD)

  • Zlatko Nikoloski

    (University College London)

Abstract

Institutions are now widely believed to be important in explaining performance. In this paper, we analyse whether commonly used measures of institutions have any significant, measurable impact on performance, whether of countries or firms. We look at three ‘levels’ of institutions and associated conjectures. The first concerns whether the political system affects performance. The second concerns whether the business and investment environment affects the performance of countries and the third concerns whether perceived business constraints directly affect the performance of firms. In all instances, we find little evidence of a robust link between widely used measures of institutions and our indicators of performance. We consider why this might be the case and argue that mis-measurement, mis-specification, complexity and non-linearity are all relevant factors.

Suggested Citation

  • Simon Commander & Zlatko Nikoloski, 2010. "Institutions and economic performance: What can be explained?," Working Papers 121, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:121
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    More about this item

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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