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Institutional quality in the form of extractive or inclusive institutions influences economic outcomes. We examine the positive moderating effect of institutional quality on the relationship between financial inclusion and poverty alleviation over a sample of seventy-five developing and developed countries (2004–2017). We use six different financial inclusion measures together with an informal political institution variable, applying both cross-section and quantile analysis. We find that institutional quality intensifies the beneficial effects of financial inclusion on poverty rates. This effect is more pronounced in poorer economies than in wealthier ones. Our findings yield implications for policy makers seeking to tackle the institutional causes of poverty.

This paper provides evidence regarding the impact of soft information on foreign bank efficiency in the ASEAN-5 market in the years following the Asian crisis. The analysis presented here develops previous literature by disaggregating soft information into five difference types and examining whether institutional quality (proxied for by host-country economic risk stability index) mitigates the impact. Using a three-stage estimation process we find that soft information does indeed affect foreign banks’ efficiencies in an identifiable manner, but host-country institutional quality acts so as to significantly lessen the effect.

We analyse the investment-to-cash flow relationship in Europe using a sample of manufacturing small- and medium-sized enterprises (SME) over the period 2009–2016. We investigate the effect of regional institutional quality on the investment-to-cash flow sensitivity, finding that, although credit constraints remain a serious problem for European SMEs, high-quality regional institutions contribute to mitigate the dependency on internally-generated resources to finance new investments. Improvements in local institutional quality can therefore facilitate SMEs’ access to credit–e.g. through inter-firm trade credit relationships –, but are insufficient to overcome the credit restrictions faced by European SMEs.

The paper investigates the impact of institutional quality on economic growth by taking 48 countries in Asia between 2005 and 2018. By using the quantile regression methods with panel data, institutional quality is found to be a key factor of economic development. However, in the lower-income Asian countries, the institution with better quality appears to promote the growth more effectively than in the higher-income ones. Moreover, the paper also finds out a nonlinear relationship between institutions and economic growth. The results show that there is an institutional threshold for economic growth to reach its highest level. If the institution indicator exceeds the threshold, it causes the reverse effect on the growth. Moreover, the economic growth of Asian countries is also affected by inflation (INF), labor force (LABO), trade openness (OPEN), and infrastructure (TELE). From that, the study suggests some policy implications for Asian countries and Vietnam, in particular, in order to improve institutions contributing to economic growth.

It is commonly accepted in the economic literature that institutions influence economic development. But can we detect the effect of quality of institutions on the performance of specific economic sectors in the regions of a country? There is a significant gap in knowledge and evidence of this in the literature. Since the 1990s, India has adopted a set of reform steps to improve the efficiency of its electricity sector. However, there remain significant performance differences among the regulated network utilities. We apply a stochastic frontier analysis to examine the performance of electricity distribution utilities in 24 Indian states. Our estimated heteroscedastic cost frontier model allows us to identify determinants of performance related to state-level institutional and economic factors. The findings confirm that economic development and institutional quality positively affect the performance of electricity distribution utilities. Additionally, we simulate the potential cost savings from institutional enhancements. The results support the need to strengthen the institutions, for example, through reform and bolstering of independent regulatory agencies.

We study the interactions between institutional quality, government expenditure, tax revenue, and economic growth in low-income countries (LICs) and lower middle-income countries (LMICs) over 2005–2019. The primary distinguishing factor of the paper is the simultaneous inclusion of all these four variables in a single temporal causal model. A second distinguishing feature of the paper is its focus on LICs and LMICs and a clear distinction between short-run and long-run results. Tax revenue is considered as general revenue as well as revenue from taxes on international trade, and customs and other import duties. Our results show that institutional quality, government expenditure, tax revenue, and economic growth often have endogenous links among each other in the short run. These results are not always uniform across our samples. On the other hand, a robust and uniform result across all samples is that the three covariates are important drivers of long-term economic growth. Thus, the co-development of stronger institutions and more effective fiscal policies (relating to taxes and government expenditure) appear to be key in procuring sustained long-term economic growth of countries.

This paper investigates the moderating role institutional quality plays in foreign direct investment led growth hypothesis in Nigeria from 1984 to 2018 using autoregressive distributed lag estimation technique. Specifically, the study contributes to the literature by using seven different institutional indicators to moderate the effect of foreign direct investment on economic growth. The findings reveal that foreign direct investment has no direct (positive) effect on economic growth in Nigeria. However, the interactive effect of institutional indicators with foreign direct investment has significant impact on economic growth in most of the models. This implies that institutions serve as important absorptive capacity that needs to be strengthened for the country to benefit maximally from the growth effect of foreign direct investment. This study therefore concludes that good institutional quality matters for foreign direct investment and growth in Nigeria.

The paper empirically examines whether and how political institutions shape the nexus between finance and carbon dioxide (CO2) emissions. In a sample of developing and developed countries, it finds that financial development impedes green technology development and thus raises energy use and CO2 emissions, the effects that moderate with improvements in institutional quality. Despite so, there are differences between banks and stock markets, banking competition and concentration, and household and firm credit. Specifically, a more concentrated, less competitive bank-based financial system that lends more to households hinders green technology development and exaggerates energy use and CO2 emissions, and the impacts diminish when institutional quality enhances. Conversely, a more market-oriented financial system with a more competitive and less concentrated banking sector that lends more to private non-financial enterprises promotes green technology development and decreases energy use and CO2 emissions, the effects that weaken when the quality of political institutions betters.

The main goal of this paper is to empirically examine whether human capital, institutional quality, and economic development affect the relationship between export upgrading and economic growth. Different from most previous studies, which include an interaction term between export upgrading and a conditioning variable, this article applies an innovative dynamic panel threshold regression model to allow for non-linearity and an endogenous determination of the threshold location. The model is implemented using a panel data set of 56 developed and developing countries over the period of 1995–2015. Our main findings are twofold. First, the relation between export upgrading and economic growth appears to be non-linear. Second, we find evidence that export upgrading can only enhance economic growth in countries satisfying certain threshold prerequisites, regarding initial income level, human capital, and institutional quality.

This paper analyzes how institutions' quality shapes the relationship between inflation targeting and financial stability in 63 countries over the period 1990–2014. We find that targeters with poor institutions are less financially stable than non-targeters only in Emerging and Developing Countries who use little or no macroprudential policies. As these policies are implemented, this effect works in reverse or becomes nil when institutions' quality improves. Thus, our paper calls for an explicit mandate for central banks in former countries to pursue both inflation and financial stability through macroprudential instruments' moderate use.

This article aims to evaluate Myanmar’s exports of manufacturing products by using a gravity trade model for emerging ASEAN economies. The main focus of this study is to assess whether Myanmar’s manufacturing exports have recovered in terms of the gravity trade standard of the other emerging ASEAN countries for the post-sanction period of 2013–2018. Unlike the previous studies, this article contributes to the literature by targeting the post-sanction period and by applying both in-sample and out-of-sample estimation methods to ensure the consistency and robustness of their results. The main findings from the gravity trade model estimation are summarised as follows: first, Myanmar’s manufacturing exports for the post-sanction period are still significantly below the level of the gravity trade standard. Second, the downward deviation from the standard could be explained by the two Myanmar-specific factors, that is, the low institutional quality and the Dutch Disease effect in Myanmar’s exports to Western countries, but not fully in those to Asian countries. The additional factor for the deviation against Asian countries might come from Myanmar’s sluggish participation in the international production networks. JEL Codes: F14, O53

This paper uses data for 53 countries from the World Values Survey in a multilevel regression analysis that seeks to disentangle individual, institutional and other-regarding factors affecting ethi...

The empirical limits of this study lie in investigating the nexus between trade openness, institutional quality and economic growth in emerging BRICS countries. Having nascent institutions, the study aims to analyse their role in determining the trade–growth relationship. Using endogeneity expunging GMM technique, the empirical evidence shows—first, imports play a crucial part in augmenting growth. While exports and overall trade openness do show a positive impact, they lack the statistical significance. Second, institutional infrastructure shows an indirect effect by augmenting the economic performance when complemented with higher imports. These countries stand to gain more from imports with improved institutional infrastructure. JEL Codes: F10, O4, C23

This study investigates whether there is an institutional quality threshold effect on income distribution. We employ the dynamic panel threshold model developed by Kremer et al. (2013: Empirical Economics 44(2): 861–878) and a panel of both developing and advanced countries from 1995 to 2017. Our findings suggest the inequality-reducing effect of institutional quality is disproportionate. More specifically, we find two-pronged results: (i) when institutional quality is measured by World Governance Indicators, we find quadratic effect for advanced countries, but a monotonic negative effect for developing countries; (ii) when the International Country Risk Guide-based measure of institutional quality is used as the threshold variable, we find a Kuznets inverted U-shaped relationship between institutions and income inequality for both advanced and developing countries. The results also show a higher threshold value for developing countries compared to advanced economies. These results are robust to both measurement and endogeneity issues. The results have interesting policy implications for income inequality in developing economies.

In this study, we address the issue of whether trust enhances institutional quality. Despite accumulated research on the topic, comparative studies examining whether such a relationship holds across different regions are rare. Consequently, in this study, we focus on the heterogeneous effect of trust on the protection of property rights worldwide. According to our research, in Western democracies, owing to relatively effective legal systems, trust facilitates cooperation among citizens in utilizing public means to collectively secure properties. In contrast, in other parts of the world, owing to less effective legal systems, citizens with high levels of trust, who presumably have access to many social resources, utilize private means such as informal networks, for protecting property rights. Our empirical analysis of time-series cross-sectional data, and individual-level survey data yields evidence supporting the aforementioned assertion. Moreover, we find suggestive evidence of a causal mechanism linking trust and institutional quality.

We examine the linear and nonlinear long-run relationship between public expenditure and institutional quality, and income inequality in Asia and the Pacific. By applying panel cointegration methods using a dataset from 1988 to 2014, our main findings suggest that public expenditure and institutional quality have negative long-run, steady-state effects on income inequality in Asia and the Pacific. The effect of institutional quality has only a one-way Granger causality link to income inequality. The existence of a nonlinear relationship between public expenditure and institutional factors linked to income inequality is also found. It implies that, at the early stage of institutional development, a country whose economy has experienced higher public expenditure generates rising income inequality; then, in the long run, when the country improves its institutional quality, higher public expenditure results in lower income inequality.

This article examines the impact of institutional quality on bilateral trade flow between Malaysia and selected 25 African Organisation of Islamic Cooperation (OIC) member countries. Four institutional qualities were selected from World Governance Indicators with other trade predictors from the period from 1985 to 2016. Using gravity model of trade and Poisson pseudo-maximum likelihood estimation method (PPML) technique, the results confirm that government effectiveness, regulatory quality and political stability have an adverse effect on bilateral trade flow among the OIC countries in Africa. On the other hand, these institutional quality variables were considered as a strength for Malaysian economic growth. Therefore, better institutional quality reforms are needed among OIC member countries in Africa in order to accelerate trade, economic growth and development in their region.

In the last few decades, the role of institutions has received renewed attention as a key factor to foster regional growth and innovative performance, raising researchers’ interest in assessing the...

The paper scrutinized the correlation between financial development interaction with institutional quality and economic growth in Africa. The study adopted 30 different interactions. The study used the Augmented mean group estimation technique to estimate the model. Gross domestic savings/GDP and broad money/GDP positively influenced growth with the majority of interactions with institutional quality indicators. Credit to Private Sector/GDP interaction with Voice & Accountability; and Political Stability has a higher impact on growth than any interaction variable. However, government effectiveness, regulatory quality, and corruption control are weak in Africa; even if interacted with financial development indicators, it mostly reduces economic growth. This study recommends that governments in Africa strengthen financial development indicators; Bank Deposit/GDP, Gross Domestic Savings/GDP and Credit to private sector/GDP, and institutional quality indicator political stability & absence of violence since their interaction has proven to aid rapid economic growth.JEL Classification: E17, F62, F63How to Cite:Nketia, E. B., & Kong, Y. (2021). Decipheting African Financial Development Interaction with Institutional Quality and Economic Growth Nexus. Etikonomi: Jurnal Ekonomi, 20(1), 23 – 44. https://doi.org/10.15408/etk.v20i1.16177.

Based on the stakeholder theory, we posit that firms’ innovation, as a strategic choice, is determined by not only firms’ resources but also their pressures from different stakeholders and relationship with the government. Using a dataset of 3,444 firms in seven ASEAN countries, we find that firms’ innovative outputs are positively influenced by export orientation and fierce competition but restrained by the presence of foreign investment. In addition, while strengthening the relationship with government facilitates, the chance to create some types of innovation, could magnify or dampen the effects of those pressures on firms’ innovation. Our findings have useful implications for the firms’ managers to accumulate and spend resources to build up a strong capacity for innovation. For the governments in ASEAN region, they should focus on improving the institutional quality and providing incentives for foreign investments that only bring advanced technologies and spillover effects.

PurposeThe introduction of Basel capital adequacy standards (I, II and III) has provoked a large body of empirical and theoretical literature that aimed to detect the consequences of risk-based capital rules on bank lending behaviour and credit availability (and the possible emergence of the credit crunch phenomenon), and came up with divergent conclusions. This study aims at participating in this continuous debate but detecting the applicability of the credit crunch theory in the MENA region, taking into consideration the impact of the institutional environment, which may play a role in mitigating the supply-side credit crunch.Design/methodology/approachThis study exploits the Fixed Effects method on a dataset of 210 banks from 14 MENA countries over the period 1999–2016. The paper exploits the percentage change in bank credit as a dependent variable, capital requirements and three institutional quality variables as explanatory variables, in addition to a set of micro- and macro-economic variables.FindingsThe study finds that the implementation of higher capitalisation ratios does participate in a significant decline in bank credit supply. Additionally, by testing the impact of institutional factors on bank lending, it reveals that good governance and political stability encourage banks to extend credit and soften the credit crunch, while higher level of financial freedom discourages banks from expanding loan supply and even magnifies the decline of credit following tightening capital requirements.Practical implicationsThis paper provides very important insight for MENA policymakers and bank regulators by highlighting the importance of the institutional environment factors in amplifying or softening the effect of higher capital requirements in their economies.Originality/valueIn addition to examining an understudied sample of countries, this paper's originality and value added are represented mainly by testing the impact of institutional environment and governance level on bank lending behaviour.

PurposeThis paper examines the link between culture, institutional quality and real earnings management and accrual earnings management by combing the study by Hofstede (2001) and Enomoto et al. (2015). The paper tries to test the effect of culture on institutional quality and both real earnings management (REM) and accrual earnings management (AEM).Design/methodology/approachThe sample of the research paper includes 38 countries. Hofstede cultural dimensions are used to measure cultural values. Public governance indicators published by the World Bank are used as a proxy for measuring the institutional quality. Earning management scores constructed by Enomoto et al. (2015, p. 191) are used for measuring real earnings management (REM) and accrual earnings management (AEM). Partial Least Square (PLS) based Structural Equation Modelling (SEM) is used to test the relationship between culture, institutional quality and earnings management.FindingsThe results support the relationship between culture and institutional quality. Also, the results reveal a significant relationship between culture and accrual earnings management, but an insignificant relationship between culture and real earnings management. In addition to that, another important finding is that institutional quality has a significant impact on real earnings management, but has no significant effect on accrual earnings management.Practical implicationsThe results suggest that standard setters need to consider the quality of institutions to improve the quality of financial reports. Also, it highlights the role of both formal and informal cultures in shaping financial reports.Originality/valueFor the best of our knowledge, this the first time to test the link between culture and institutional quality and comparing the impact on both real earnings management and accrual earnings management.

The devastating effect of COVID-19 on the economy, health and the financial system is well known now. The pandemic has distorted trade as well. In such a situation, trade facilitation (TF) has emerged as an effective tool to mitigate the devastating effect of COVID-19 on trade. Several countries have initiated policy responses to take necessary steps towards TF measures. However, a relevant question arises: Are all these countries prepared for the effective and efficient implementation of the TF measures? This study attempts to answer this question by identifying the major institutional determinants of TF measures (mainly included in the World Trade Organization [WTO] Trade Facilitation Agreement) based on existing theories, such as the ‘theory of institutions’ and the ‘political economy of trade policy’ approach. It utilizes data of many countries for the years 2012, 2015, 2017 and 2019. The findings of this study suggest that the quality of governance has a significant positive impact on all TF measures. Moreover, the study finds that developing and small-sized countries are more responsive to the impact of an institutional factor on their TF performance than developed and large-sized countries. Therefore, it proposes measures to improve TF performance, which is crucial to minimize further disruptions in trade caused by COVID-19.

This study aims to shed light on the capital buffer and risk adjustments in the banking sector of South-Eastern European countries following the financial crisis of 2008 that triggered a series of ...

Bilateral and multilateral development agencies spend a great deal of time, money, and effort trying to shape the reform priorities and processes of their counterpart countries. However, the means by which development agencies can achieve these ends are poorly understood. This article draws upon the first-hand experiences and observations of more than 1000 public sector officials from 70 low- and middle-income countries to better understand which external sources of reform advice and assistance are most and least useful to public sector decision-makers—and why. We find that donors more effectively shape reform priorities when they choose to deliver their funding through the public financial management systems of counterpart countries, rather than using channels of aid delivery—in particular, technical assistance programs—that bypass host governments and signal a lack of trust in the motivations and capabilities of the local authorities. This finding holds true even after controlling for institutional quality, or the trustworthiness of public sector institutions, in aid-receiving countries. As such, our results call attention to the fact that development agencies can amplify their policy influence by entrusting their counterpart governments with aid management responsibilities.

This paper examines the determinants of foreign direct investment in the Southern Central Coast (SCC) region of Vietnam over the period 2007–2016 by a spatial econometric approach. The estimation results show that FDI inflows in the SCC region are attracted by the cheap labor cost of the host province, and provinces that own national seaports have great advantages in attracting FDI, confirming the vertical FDI form in the SCC region. Interestingly, skilled labor force in the surrounding provinces has a positive impact on FDI inflows in the host province. In particular, regarding the role of local institutional quality, the estimation shows that the legal institutions and level of social security in the host province play important roles in attracting FDI.

Studies have continued to emerge on the transmission channels through which finance influences growth. It has been argued that more finance without efficient institutions may not yield more growth. Meanwhile, studies on sub-Saharan Africa are sparse. None of existing studies have examined the moderating effect of institutions on finance–growth nexus in Southern Africa despite the weak institutions in the sub-region. Deviating from extant studies, this study contributes to general discussion by taking care of cross-sectional dependence among countries within an economic bloc. Driscoll and Kraay’s nonparametric covariance matrix estimator is used to take care of cross-sectional dependence. The research outputs reveal that institutional quality complements and stimulates the growth benefits of financial development in Southern African countries. It is further established that institutional quality has to persistently be above the threshold of 6.08 on the ordinal scale of 10 point before institution can strongly stimulate and complement financial development to impact positively on growth. This study, therefore, recommends that there is an urgent need for Southern African countries to strengthen and improve the quality of institutions so as to maximize the growth benefits of financial development.

The paper researched the causal relationship between institutional quality measures and real gross domestic product growth (GDP) on the South East European (SEE) countries in the period 1996-2016. To achieve the aim of this research the panel techniques (the Dumitrescu-Hurlin noncausality approach) were used. The SEE suffers from very poor control of corruption, as well as significant political instability, the weak rule of law and poor government effectiveness. Our results indicate that there is unidirectional homogeneous causality between political stability and real GDP growth. Control of corruption leads to government effectiveness. The rule of law leads to control of corruption, and government effectiveness to political stability. Additionally, there is a bidirectional homogeneous causality between the rule of law and political stability. Thus, the research found some empirical evidence that stronger institutional measures cause higher economic growth.

The industrial sector has been identified as a tool for effective economic diversification among developing countries but major challenges of the sector have been the institutional and human capital in these economies. Consequently, the need to re-assess the relationship among the three is pertinent. The study investigates empirically, the impacts of institutional quality and human capital on the industrial sector growth of the ECOWAS. The methodology adopted is quantitative with the use of panel data analysis. Findings from the analysis show that both human capital and institutional quality in the ECOWAS have not supported industrial growth significantly. However, the result shows that macroeconomic variables such as inflation rate and exchange rate have the largest effect on the growth of the industrial sector of ECOWAS. The study used ECOWAS that has not been used by any of the previous authors and the economic bloc is in dire need of economic diversification. It is recommended that ECOWAS countries should improve on their institutional quality and human capital development for them to be effective in promoting the growth of their industrial sector.

This study investigates how the enactment of regulations and laws dealing with climate change influences CO2 emissions. Using a sample of 83 countries and covering the period from 2003 to 2014, our dynamic panel analysis yields two major results. First, the enactment of new climate change regulations (i.e., amendments, decrees, orders) associated with a strong rule of law significantly diminishes CO2 emissions. This result validates the hypothesis of Gunningham (J Environ Law 23:169–201, 2011. https://doi.org/10.1093/jel/eqr006 ), which argues that the efficiency of environmental legislation must be supported by regulatory institutions that can efficiently enforce the law. Second, the enactment of new climate change laws seems to not impact emissions levels independently of institutional quality. It may be possible that private agents anticipate the entry into force of the new law(s) and must consequently adapt to the requirements of such laws, leading to a nonsignificant impact on CO2 emissions.

This study investigates the impact of foreign aid and remittance inflows on entrepreneurship progress in Africa. The role of institutional quality in the relationship between foreign aid and entrepreneurship is also investigated. We explore data of 19 African countries for a period of 2006–2017, and panel data regression techniques are employed. The study finds that: (1) Foreign aid impact on entrepreneurship is negative. (2) The remittances mediate the negative impact of foreign aid on entrepreneurship. (3) Institutional quality mediates the negative impact of foreign aid on entrepreneurial progress. (4) The threshold level of remittance at which foreign aid would meaningfully enhance entrepreneurship is 10.59 as a percentage of GDP while that of institutional quality is 5.04 on a scale of 10 point. (5) The role of remittances and foreign aids is complementary in firm start-up activities. (6) Institutional quality plays important roles in moderating impact of foreign aid on firm start-up activities. In addition, our results show that concentration in banking industry does not benefit entrepreneurial activities. The study concludes that foreign aids and remittances perform complementary roles in improving the level of entrepreneurial development in Africa. The strong institutional environment is very important in promoting entrepreneurial success. These findings are robust to alternative estimations.

Total Factor Productivity (TFP) explains the bulk of the differences in income level across territories A major policy issue refers to the ability of place-based policy to promote TFP growth in backward areas We investigate the effect of the European Regional Development Fund (ERDF) on local TFP growth in Southern Italy between 2007 and 2015 By using different empirical models (LASSO cross-section, panel fixed-effect regressions and a spatial regression discontinuity design), we show that, on average, local TFP seems to be rather unresponsive to EU programs Some suggestive evidence of a positive effect is found for ERDF infrastructure investments and for the areas characterized by higher institutional quality and population density

We examine the contribution of de jure and de facto institutional instability to long-run growth and development for a large panel of countries in the period 1820–2016. To this end, we extract the latent components of de jure and de facto instability of political institutions from several existing datasets. We distinguish between two types of instability where the positive type is associated with adaptive efficiency, while the negative type promulgates insecurity of property rights and institutional weakening. The evidence suggests that greater de jure and de facto institutional instability has a strong negative impact on income and growth, where de facto instability appears to be relatively more important than de jure instability. The negative effects of institutional instability operate independently of the positive effects of institutional quality, which implies that even second-best institutions are able to sustain a high-level growth path and economic development if they manage to maintain a minimum level of stability. The negative effects of greater institutional instability are robust across a variety of specification checks, and do not seem to be driven by sample selection bias. Instrumental variable estimates provide results with strong identification properties and suggest that the effect of institutional instability on long-run growth and development appears to be causal. Our instrumental variable estimates show that a modest increase in de facto instability is associated with 26 percent lower per capita income in the long run.

This paper empirically explores the drivers behind the cross-country heterogeneity in inflation-linked (IL) debt for advanced and emerging economies between 1995 and 2017. It finds that countries with more flexible exchange rate regimes and higher tax rates issue more of their public debt linked to inflation. There is some evidence that high inflation countries issue more IL debt, but no indication that country size, financial development, or institutional quality is significantly associated with the IL debt share. For IL debt over gross domestic product, however, institutional quality matters, but the exchange rate regime and inflation do not.

The aim of this study is to investigate the relationship between environmental degradation, health, and institutional quality in 17 Middle East and North African (MENA) countries. We use a panel cointegration analysis to determine the long-run relationship over the period 1996–2018, using both FMOLS and DOLS methods. Our results suggest that environmental degradation affects negatively the health status in the long run in MENA countries. However, the effect of environmental degradation on health can be ameliorated through the presence of good institutional quality. Therefore, policymakers in MENA countries should enhance the role of good governance in order to ensure the successful implementation of environmental laws.

This paper conducts a robustness analysis of the impact of diasporas on institutional quality in home countries. Using the Database on Immigrants in OECD Countries (DIOC), we attest that the home country institutional development role of diasporas found in the literature is robust to modifications in terms of the dataset, the measurement of diasporas and the instrumental variable procedures used in our cross-sectional and panel analyses. The novelty of this paper is that we take the heterogeneity of diasporas into account in terms of their distribution across host countries, their duration of stay, and the level of development of their home countries. As in earlier literature, we find robust evidence that diasporas enhance institutional quality in home countries. We also find that the intensity of the diffusion of advanced institutions from developed host countries to home countries through the international migration channel is weaker with diasporas characterized by shorter average duration of stay and with diasporas from developing home countries. However, this diffusion effect is not significantly related to the distribution of diasporas across OECD host countries.

Institutional role to perpetuate the relationship between financial development and income inequality has significant importance from policy perspectives. The broadening income inequality and its procurement through financial sector is attracting the worldwide attention of researchers now days. This study is an attempt to investigate the relationship of income inequality and financial development varying with level of institutional quality. To this end, unbalanced panel data set for 124 countries covering the time span 1990–2015 is used applying the instrumental variable threshold regression approach. The estimated results highlight that embedded efficient institutional framework of a country assures more income equality with financial development. Moreover, GDP growth increases the income inequality if institutional quality is below the threshold level while educational attainment is a major factor to decrease it. In respect of policy implications, financial sector may be fruity to overcome income inequality if policy makers bring the level of institutional quality up to threshold level of that country.

This article uses panel-corrected standard errors (PCSE) estimator and dynamic fixed effects autoregressive distributed lag (DFE ARDL) estimator to examine the influence of the institutional qualit...

PurposeThis paper aims to analyze the impacts of institutional quality on trade flows of NAFTA with a panel data set of 105 countries spanning the period 2006–2017.Design/methodology/approachWe applied the system generalized method of moment (GMM) estimator to investigate the impacts.FindingsThe results show that institutional quality is a positive and significant determinant of international trade flows of the NAFTA bloc and its trading partners. Our results also indicate that the impact of institutional quality depends on the level of economic development of NAFTA's trading partners. Specifically, the trade elasticity of institutional quality is the highest for NAFTA’s trade with middle-income countries and the lowest for NAFTA's trade with low-income countries. In the long run, the trade elasticity of institutional quality increased significantly, with the highest increase in the case of NAFTA's trade with medium-income countries and the lowest increase in the case of NAFTA's trade with low-income countries.Originality/valueThis study contributes to the existing literature in three different ways. First, we examine the differential impact of institutions on NAFTA's trade according to the level of economic development of NAFTA's trading partners. Second, we compare the differential trade elasticity of institutional quality in the long run. Finally, we support our findings through an improved research methodology by using the system GMM estimation. This method allows us to overcome the potential sample bias, omitted variable problems and endogeneity of explanatory variables.

This study sheds light on the impacts of FDI inflows and underground economy on institutional quality, as well as the moderating effect of underground economy on FDI – institutional quality nexus i...

This paper examines the effect of sectoral foreign aid and institutional quality on the economic growth of 74 developing countries from Africa, Asia and South America, and covers the period 1980-2016. We consider bilateral aid flows into three sectors, namely education, health and agriculture, and find that among the three types of aid, education aid is more effective for aid-receiving countries. The effect is conditional on the current level of institutional quality and varies substantially across regions. While education aid is more effective in South America, health aid is more effective in Asia and agricultural aid is more effective in Africa. As the level of institutional quality improves, the gap between the marginal effect of education, health and agricultural aids widen. Our findings have strong policy implication for donor countries and international aid organisations, which shows that it is more desirable to shift aid flows towards the education sector as the level of institutional quality improves. Refereed/Peer-reviewed

PurposeIn view of the significance of public–private partnerships (PPPs) as a tool for bridging infrastructure deficits, it becomes imperative to study its determinants. The objective of this paper is to empirically study the determinants of PPPs in India at a subnational level, in terms of both number and value of PPP projects.Design/methodology/approachThis study investigates the determinants of value and number of Indian PPPs at a subnational level for the period 2008–2017. The determinants are analyzed using two-step system generalized method of moments (GMM) and negative binomial regression. Select correlates examined are market size, fiscal compulsions, institutional quality, financial sector development and physical infrastructure.FindingsThe results indicate that fiscal compulsions, financial sector development and physical infrastructure influence PPPs favorably, whereas low institutional quality impacts PPPs adversely. A pertinent finding of this study is that the past value of PPPs lowers the current year's PPP value.Practical implicationsThe findings are expected to assist subnational governments and policymakers in formulating policies that attract more PPP projects (in terms of both value and number).Originality/valueThis is the first study that analyzes the determinants of infrastructure PPPs at a subnational level in India.

Previous studies on financial development have shown that differences in the legal origin explain differences in financial development. Using historical comparisons and cross-country regressions for 40 countries observed for the period from 2005 to 2018, our research assesses how different legal origins have affected the development of Islamic finance worldwide. More particularly, our research assesses empirically why and how the adoption of Shari’a, wholly or partially (combined with common or civil law), could explain the level of development of Islamic finance in different jurisdictions. Our primary results show that countries adopting a Shari’a legal system have a very well-developed Islamic financial system. Moreover, countries adopting a mixed legal system based on common law and Shari’a law have sufficient flexibility within their legal systems to make changes to their laws in response to the changing socioeconomic conditions, and this has helped the development of the Islamic financial industry. However, countries adopting a mixed legal system based on both civil law and Shari’a law appear less flexible in making changes to their old laws and this thwarted the development of the Islamic financial industry in these countries. Furthermore, we have found that the concentration of a Muslim population (the percentage of Muslim population) along with the level of income have both had a positive effect on the development of Islamic banking assets and on the development of Islamic banking as a whole.

Most of the literature that explored the relationship between financial development and economic growth taking into consideration the roles played by institutional quality in the ECOWAS region still debates on the roles of institutional quality on economic growth. This study used data from 1996-2017 for 15 emerging economies within the ECOWAS by applying two-step SYS GMM (SGMM) estimators. The following conclusions were developed: first, the study discovered that financial development has no significant and positive impact on economic growth in the ECOWAS region. Secondly, regulatory quality and control of corruption, which are considered as institutional quality variables, have opposing results with control of corruption reducing growth as well as regulatory quality variable increasing growth. Again, the results indicate that capital formation has a positive association with growth and labor force influencing growth negatively. Finally, due to a lack of proper corruption control systems in the region and poor financial sector development, growth cannot improve.

Recent debates on banking regulation indicate that regulatory capital improves banking stability but may also impede economic growth. These outcomes suggest that regulatory capital reform may induce a trade-off between bank stability and economic growth. We enter this conversation by investigating the direct relationship between bank stability and economic growth and, further, examine the effect that regulatory capital and institutional quality have on this relationship. Using generalized method of moments on a global panel data set of over 100 countries, across the period 1995–2015, we find no support for a regulatory capital-induced trade-off between banking stability and economic growth. On the contrary, we observe a positive relationship. Moreover, using an innovative approach based on a trade-off metric, we find strong support for the role of regulatory capital in simultaneously maintaining high levels of economic output and banking stability. Institutional quality, however, does not provide evidence of such an effect directly, but enhances the positive effects of regulatory capital. These results provide strong support for the current implementation of increased regulatory capital.

Based on empirical panel data for a sample of 37 sub-Saharan African economies for 1996–2016, this inquiry examines the extent to which institutional quality explains the existing cross-country difference in economic performance in sub-Saharan Africa. While most of the existing studies focus only on the direct effect of institutional quality, this article investigates the direct and indirect effects of institutions. It also reflects on impact of the interaction between institutional quality and innovation on economic growth in developing countries. The evidence provides very strong support for the direct effect of institutional quality development on economic performance as well as for its indirect effect via its impact on innovation. However, the results do not support theories that argue in favour of interaction between institutional quality such as democracy, governance quality and innovation, thereby pointing to the need for better calibration of the numerous existing theoretical postulations and related empirical measures.JEL: D70, D72, O15, O30, O31, O55

PurposeThis paper explores the institutional challenges and opportunities in Fiji's integration into the global value chain. Fiji is naturally endowed with coconut palms across its many islands. However, the coconut sector remains rudimentary with little value-addition. Coconut products of high-value are now being produced and exported throughout the world. While many coconut producing countries have benefitted from this coconut demand surge, Fiji has been unable to benefit from the international market.Design/methodology/approachThis study utilizes a mixed-methods approach to analyze the challenges and opportunities. First, an analysis is done on a macro-level at the link between institutional quality and Fiji's export of coconut products. Then, primary data is collected with semi-structured interviews with key stakeholder groups in regions of Fiji. The goal is to gain an understanding of the perceived challenges and opportunities from each actor.FindingsThe empirical results show that institutional quality matters for Fiji's coconut exports. Increased scores in the government effectiveness and voice and accountability indicators enhance coconut exports from Fiji, suggesting that domestic institutions play an important role. Interviews with key actors reveal that communications among each stakeholder group are fragmented. The main institutional actors and the producers have different perceptions of the industry's challenges, thus resulting in different ideas on how to address the issues.Research limitations/implicationsThis study is limited by the data availability of coconut production and trade volume of more specific products. Furthermore, due to the transportation and weather constraints during our visit to Fiji, certain parts of the island were not accessible.Originality/valueThis paper uses a mixed-methods approach to assess a specific case study.

There is an ongoing debate within the economic growth and development literature whether institutions or human capital are more important for economic growth. We add further arguments to this discu...

This study examines the moderating effect of institutional quality on the finance–growth nexus in the West African region via dynamic panel generalized method of moments. The findings reveal that the linear financial development has a separate positive influence on growth, while the interaction between financial development and institutional quality has a negative effect on growth. It implies that institutional quality constitutes a drag that diminishes and leaks out the growth benefits of financial development in West Africa. The threshold level of institutional quality beyond which financial development accelerates economic growth in the region is found to be 4.77 on the ordinal scale of 10 points. It is, however, evident that most of the countries in West Africa operate below the threshold. Hence, it is concluded that the institutional framework weakens the impact of finance on growth in the subregion of sub-Saharan Africa.

A large body of literature shows that oil wealth leads to poor quality of institutions. The existing literature, however, neglects the dimension of ownership. This article provides the first empiri...