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Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

Both institutional quality and institutional stability have been argued to stimulate economic growth. But to improve institutional quality, a country must endure a period of institutional change, which implies at least a little and possibly a lot of institutional instability. We investigate the growth effects of institutional quality and instability, using the political risk index from the ICRG in a cross-country study of 132 countries, measuring instability as the coefficient of variation. Using the aggregate index, we find evidence that institutional quality is positively linked to growth. While institutional instability is negatively related to growth in the baseline case, there are indications that the effect can be positive in rich countries, suggesting that institutional reform is not necessarily costly even during a transition period. Sensitivity analysis, e.g., decomposing the political risk index by using both its constituting components and the results of a principal components analysis, using other measures of institutional quality and excluding outliers, confirm the general results, with qualifications.

Abstract:We study the effects of institutional instability on growth. Using principal components analysis, we construct measures of institutional quality and instability from the political risk index of the International Country Risk Guide. A panel-data analysis of 132 countries during 1984–2004 reveals that institutional quality, especially with regard to the legal system and the protection of property rights, is positively linked to growth. As for institutional instability, we find evidence of a positive relationship in rich countries but a negative link in poor countries, suggesting that instability may reduce problems of institutional sclerosis in the former and that instability primarily entails an increase in transactions costs and uncertainty in the latter.

To analyse the impact of the environmental policies, we start by reviewing
the literature on the environment, technological knowledge and economic
growth. Then, we build a general equilibrium endogenous growth model where
final goods are produced either in the skilled-labour intensive Clean sector
or in the unskilled-labour intensive Unclean sector. By solving numerically
transitional dynamics towards the unique and stable steady state, we observe
that environmental policies encourage scale-invariant technological knowledge
bias. This, in turn, promotes environmental quality, the skill premium and
economic growth. Moreover, the impact of population growth on the
steady-state growth rate is higher under strong households? environmental
conscientiousness with future generations.

Regional income disparities have increased in many European countries recently, even as national and supra-national policy instruments were created to correct them. To explain these evolutions, we develop a two-region, two-sector model with migration and public investment in infrastructure and education. Accumulation and creation of new ideas and technologies as well as migration are at the core of differential regional growth. In this framework, we assess the effectiveness of structural funds, modelled on the EU policy. In a numerical example calibrated to Portugal, we find that, to diminish the initial gap in income per capita, the backward region needs to receive over 8% of its own GDP in structural funds, while the actual disbursements were around 4%. We also find that maximizing innovation in the backward region conflicts in the short run with the goal of maximizing its income per capita. Moreover, the rich region has an incentive to bias the allocation of structural funds towards human capital formation.

This study investigated the fiscal policy variables that contributed to growth in Nigeria for the period of 1981 to 2010 in view of hypothesizing the fiscal policy variables-growth effect. Secondary annual time-series data were used. Data on Productive expenditure, Unproductive expenditure, distortionary taxes, non-distortionary taxes, fiscal deficit and real growth rate of GDP were analyzed using cointegration and ordinary least square techniques. Cointegration results show a long run relationship among the variables. Results of fiscal-growth effect model invalidate the claim that only productive expenditure, distortionary taxes and fiscal deficit contribute to growth in case of Nigeria. These results draw attention towards the significance of non-distortionary taxes as addition to three fiscal policy variables that contribute to growth and government should reduce expenditure on recreational-cultural-religious affairs and other functions like political administrative expenses in order to achieve stabilization policies in Nigeria.