Economic Modelling 45 (2015) 118–126

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Economic Modelling
journal homepage: www.elsevier.com/locate/ecmod

Growth effects of institutions: A disaggregated analysis

Saima Nawaz ⁎
COMSATS Institute of Information Technology, Pakistan

a r t i c l e i n f o a b s t r a c t

Article history: This study attempts to examine the impact of various institutions on economic growth using panel data for
Accepted 20 November 2014 56 countries over the period 1981–2010. These impacts have been examined at aggregated level for world
Available online 11 December 2014 representative sample as well as for the sample disaggregated by the development level of the countries. We
have estimated static panel using fixed effects model and dynamic panel using system GMM. The empirical
Keywords:
analysis confirms a positive relationship between institutions and economic growth. The positive impact of
Institutions
Economic growth
control over corruption, qualitative and effective bureaucracy and desirable law and order situation on economic
Panel evidence growth is greater in high income countries as compared to low income countries. The impact of investment
Disaggregated profile is more growth enhancing in developing countries in contrast to developed economies. The crux of the
analysis is that the institutions are indeed important in determining the long-run economic growth. It is also
established that institutions play a greater role in determining growth in developed economies relative to
developing economies. The implication of this finding is that different countries require different sets of
institutions for ensuring long-term economic growth.
© 2014 Elsevier B.V. All rights reserved.

1. Introduction literature establishes a positive relationship between institutions and

High and sustained economic growth is the primary objective of all
nations. Various economic and non-economic factors determine the na-
ture and rate of economic growth. Recent debate over the determinants
of long term economic growth has brought to fore the role of institu-
tional framework in explaining the cross country differences in per
capita output. Institutions – generally defined as the “constraints that
human beings impose on themselves”1 – have been known to influence
growth as early as the 18th century or may be since time immemorial.
Adam Smith wrote in 1755: “little else is requisite to carry a state to the
highest degree of opulence from the lowest barbarism but peace, easy
taxes, and a tolerable administration of justice: all the rest being brought
about by the natural course of things”2. The role of institutions as a
determinant of growth, however, has remained overshadowed for
long owing to focus on other determinants, such as physical and
human capital and the technological advancement.
Over the last three decades, institutions have received an increasing
attention from researchers, policymakers and development practi-
tioners. The body of literature – evolved over time – concludes that
institutional framework of a country play a crucial role in determining
a country's growth performance (Acemoglu and Robinson, 2010;
Jones, 1987; North, 1981; North and Thomas, 1973). The available
⁎ Corresponding author. Tel.: +92 3334243959.
E-mail address: Saima.nawaz@comsats.edu.pk.
1
(North, 1990).
2
This quotation is drawn from the Adam Smith's Lecture in 1755 available at the Adam
Smith Institute's website.
the economic growth (Acemoglu and Robinson, 2010; Iqbal and Daly,
2014; Mauro, 1995; Rodrik et al., 2004). The findings of these studies,
however, vary substantially in terms of magnitude. The findings in
the literature are very limited towards explaining the influence of
institutions on economic growth at different stages of development.
The literature suggests that the impact of various institutions may
vary across countries depending on domestic economic environments.
For example, the Latin American countries adopted institutions more
or less in the similar manner to that of the United States of America
but the outcomes (i.e. economic development) remained markedly
different (Yifu Lin and Nugent, 1995). Pakistan and India share similar
culture and geographic characteristics but the apparent performance
of the democratic institutions in the two countries is quite dissimilar
to each other. On the other hand, many developed countries such as
Germany, United Kingdom, Taiwan and Hong Kong have posted high
growth despite notable differences among the characteristics of
the institutions established and operationalized by those countries
(Valeriani and Peluso, 2011). China and Singapore have also achieved
high growth having non-democratic institutions. Various studies
have shown that the impact of institutions on the economic growth is
varies across different sets of countries. A study of the transitional
economies shows that the control over corruption is growth enhancing
if complemented by strong democratic institutions. Institutional
measures promote economic growth in strongly democratic economies
and fail to boost growth in democratically weak countries (Iqbal and
Daly, 2014).
A limited literature has examined the impact of institution on the
economic growth at various stages of development. A further analysis

http://dx.doi.org/10.1016/j.econmod.2014.11.017
0264-9993/© 2014 Elsevier B.V. All rights reserved.
 S. Nawaz / Economic Modelling 45 (2015) 118–126
is required to understand the effects of institutions such as government
stability, control over corruption and the rule of law on economic
growth and whether or not these effects vary with the level of develop-
ment. For example, whether a government's stability is more important
than control over corruption in promoting growth. Whether or not
institutions that determine the level of administrative quality perform
equally at all stages of development. To this end, we analyze the impact
of the different types of institutions on the economic growth in this
paper. The institutions whose separate effects are examined include:
government stability; investment profile; control over corruption;
rule of law; democratic accountability and bureaucratic quality.
These indicators capture three different dimensions of institutions i.e.
i) political stability; ii) administrative quality and iii) democratic
accountability. Further, we empirically estimated the cross-country
impact of institutions on the economic growth at various stages of
development (i.e. the level of income: high income countries and low
income countries).
The empirical investigation uses the panel data pertaining to 56
countries over the period of 1981–2010. We used the fixed effects
model and a dynamic panel based on the System Generalized Method
of Moments (SYS-GMM). The fixed effects model tackles the cross-
sectional heterogeneity and the SYS-GMM methodology takes into
account the time series dimension of the data, non-observable country
specific effects, inclusion of lagged dependent variables among the
explanatory variables and the possibility that all explanatory variables
could be endogenous.
There is an active research literature concerning the interaction
between institutions and the economic growth. Our own contribution
is to show: (i) different institutions perform differently in terms of
enhancing economic growth; (ii) the impact of these institutions varies
across different sets of countries i.e. across developed and developing
economies; (iii) results can be improved by adequately controlling
endogeneity among variables. The rest of the paper is structured as
follows: Section 2 provides a brief literature review on growth effects
of institutions; Section 3 elaborates the data and methodological issues;
Section 4 explains the empirical results and the last section concludes
the discussion.
2. Literature review
The economic theory recognizes that the per capita output in a coun-
try is determined by the amount of physical capital, human capital and
technological advancement. Acemoglu and Robinson (2010) argue that
human capital, physical capital and technology are the only determi-
nants of growth. They further state that to find out why some countries
grow faster than others, we need to look for more fundamental causes
which may underlie the proximate differences across countries. Over
the last three decades, the focus of thinking has shifted away from the
so called ‘proximate causes’ to the more ‘fundamental causes’ of
economic growth. In this context, the role of institutions in explaining
the cross-country differences in the economic growth has received
more attention.
The path breaking studies by North and Thomas (1973), North
(1981), Olson (1982) and Jones (1987) inspired the researchers to
explore the role of institutions in explaining the persistent differences
in the economic development across countries. The relevant literature
suggests that institutions play a significant role in determining the
growth performance of nations. The quality of institutions in any
given country plays an important role in determining the growth pro-
cess by influencing the incentive structure for investment in human
and physical capital as well as technological advancement and innova-
tions. It is generally believed that institutions, particularly the security
of property rights play a key role in determining the long-run economic
growth (Knack and Keefer, 1995; Rodrik et al., 2004). North (1990)
argues that secure property rights and better contract enforcement
determine growth. He states that the failure of the developing countries
119
to design institutional framework based on secure property rights and
enforced contracts is the major reason for their underdevelopment.
An enormous amount of empirical work examining the relationship
between institutions and growth has developed over the last three
decades. Knack and Keefer (1995) using data for 97 countries over
1974–89, show that the quality of institutions is important for growth
and investment. They used two institutional variables in growth regres-
sions capturing the security of property rights and enforcement of con-
tract using five indicators: i) rule of law; ii) corruption; iii) bureaucratic
quality; iv) protection against risk of expropriation and v) repudiation
of contracts. These indicators were from the International Country
Risk Guide (ICRG) dataset. They also used four indicators: i) contract
enforceability; ii) infrastructure quality; iii) nationalization potentials
and iv) bureaucratic delays. These indicators were obtained from the
Business Environmental Risk Intelligence (BERI) dataset. They found
that the relationship between institutional variables and the economic
growth is positive. Mauro (1995), using cross section data for 67
countries over 1980–1983, shows that corruption is negatively linked
with investment which lowers the economic growth. On the other
hand, he finds that bureaucracy has a positive impact on the investment.
Barro (1998), in a panel of 100 countries over the sample period
1960–90, finds that ‘rule of law’ has a positive impact on growth.
Rodrik, et al. (2004), using the index of ‘rule of law’ as proxy for institu-
tions, estimated the contribution of institutions, geography, and trade in
determining income levels of the countries. They found that institutions
have a strong impact on income. They also found that variables like
geography and trade are insignificant once the institutions play their
role effectively.
Hall and Jones (1999), following Knack and Keefer (1995), used a
weighted average measure of institutions from the ICRG dataset for
127 countries. They show that differences in social infrastructure across
countries are caused by large differences in capital accumulation, educa-
tional attainment, and productivity. This accounts for cross-country
income differences. Acemoglu et al. (2001), using differences in
European mortality rates as an instrument for contemporary institu-
tions, found large effects of institutions on the income per capita.
Acemoglu et al. (2006) estimate the role of institutions on economic
growth. They use ‘constraint on executive’ from Polity IV as a proxy
for private property institutions. The authors show that private property
institutions exercise a major influence on long-run growth, investment
and financial development.
Valeriani and Peluso (2011) analyze the impact of institutional
quality on the economic growth at different stages of development by
employing a panel over 1950–2009 for 181 countries using a pooled
regression and fixed effects. They found a positive impact of institutions,
measured by civil liberties, quality of government and number of veto
players, on economic growth. They also show that institutions are
more effective in developed countries as compared to developing coun-
tries. Chauffour (2011), using data for more than 100 countries over
1975–2007, found that institutions, measured by economic freedom
and civil and political liberties determine why some countries achieve
and sustain better economic outcomes. This study shows that a one
unit differential in the initial level of economic freedom between two
countries (on a scale of 1 to 10) is associated with an almost 1 percentage
point differential in their average long-run economic growth rates. For
civil and political liberties, the long-term effect is also positive with a
differential of 0.3 percentage point.
The empirical literature discussed above, for the most part, establish
a positive and direct relationship between institutions and economic
growth. However, the findings of these studies vary substantially in
terms of magnitude. The empirical literature on institutions-growth
nexus also differs in the ways of measuring the quality of institutions
and the estimation methodology employed. However, literature
failed to adequately address the issue of endogeneity and omitted
variable bias which may generate biased and inconsistent parameters.
Further investigation, therefore, is required to tackle these problems.
120 S. Nawaz / Economic Modelling 45 (2015) 118–126
To overcome these problems, this paper employs a dynamic panel anal-
ysis model based on the “System Generalized Method of Moments”
(SYS-GMM).
3. Methodology and data
3.1. Econometric model
Following Mankiw, Romer, & Weil (1992) and Hall and Jones (1999),
we estimated the impact of disaggregated institutions on economic
growth using the following empirical model:
Δyi;t ¼ α 0 þ θIi;t þ βX þ εi;t
where Δyi,t represents GDP growth rate of country i at time t, Ii,t is the
quality of institutions for country i at time t, and X represents the matrix
of control variables while εi,t is the disturbance term. The model predicts
that institutions influence economic growth positively. The vector of
control variables X includes: human capital, physical capital, initial
income, trade openness, macroeconomic stability and growth rate of
population. These variables have been frequently used in the growth
literature (Barro and Lee, 1996; Mankiw et al., 1992; Sala-I-Martin, 1997).
3.2. Data
We employ a panel data set of 56 countries over 1981–2010 with
values taken at a five-year interval. The purpose of using the five-
year interval data is to overcome the business cycle effects and ac-
count for the missing values. This practice is fairly standard
(Acemoglu et al., 2008; Esfahani and Ramı́r ez, 2003; Temple,
1999). The choice of 56 countries is mainly based on the availability
of data \ these are the countries for which we could gather the data
on all the variables used in the models estimated. The set of 56 coun-
tries included in the overall sample has been divided into two sub-
groups based on the level of income. Low and lower middle income
countries mainly fall in the category of developing countries while
the upper middle and high income countries are termed as devel-
oped countries. We combine the first two categories i.e. low income
and lower middle income countries into one sub-group which we
call ‘Low Income Countries/Developing Countries’. Similarly, we
combine the upper middle and high income countries into another
sub-group and refer to this as ‘High Income Countries/Developed
Countries’. In Low Income sub-group, we have 22 countries while
in High Income sub-group we have 34 countries. The data on all the
variables, except institutional quality and human capital is from the
World Development Indicators (WDI) published by the World
Bank. The data on institutional quality is from the Political Risk Ser-
vices (PRS) Group and the data on human capital is from Barro and
Lee (2013).
To measure the quality of institutions, we use six indicators from
ICRG dataset that supposedly influence growth and live up to the defini-
tion of institutions. The six indicators are as follows:
i) Government Stability (GS_I)
ii) Investment Profile (IP_I),
iii) Control over Corruption (CC_I)
iv) Law and Order (LO_I)
v) Democratic Accountability (DA_I)
vi) Bureaucracy Quality (BQ_I)
Table 1 explains the conceptual definition of each indicators and its
range. These definitions are from ICRG methodology. The range of
each variable is different: for example, government stability indicator
ranges from 0 to 12, while corruption ranges from 0 to 6. The low
value indicates bad quality of institutions and the vice versa.
GDP per capita is measured at constant US dollars in 2000. Physical
capital is measured using Gross Fixed Capital Formation (CFCF). We
have used average years of schooling which has been generally
employed as a standard indicator of the human capital (Chi, 2008).
Many researchers, however, argue that the quality of human capital is
also important (Barro, 2001; Jones and Schneider, 2006). In order to
capture the quality dimension of the human capital, we multiply the
average year of schooling with labor force. We have made two adjust-
ments in the ‘total average year of schooling’ data. First, we exclude
the portion of non-working population and second, we account for the
labor force participation rate thus excluding unemployed labor. Finally,
the human capital value included in the regressions is computed as:
H = AYS ∗ LF ∗ LFPR where H is human capital, AYS is average year of
schooling, LF is the proportion of labor force in the total population
and LFPR is labor force participation rate. Inflation is measured by the
consumer price index (CPI). Overall government spending, as included
in WDI “is cash payment for operating activities of the government in
providing goods and services. It includes compensation of employees
(such as wages and salaries), interest and subsidies, grants, social
benefits, and other expense such as rent and dividends” 3.
3.3. Econometric methodology
To measure the impact of institutions on the economic growth the
panel data estimation is considered as an efficient analytical method
for analysis, since it allows us to include data for different cross sections
i.e. countries and time periods. We use Fixed Effects Model (FEM) to
estimate the impact of institutions on economic growth. We estimate
the fixed effects model with time and country specific dummies. Before
proceeding further, it is important to highlight the possibility of poten-
tial reverse causality and endogeneity between institutions and the
economic growth. The most common problem with institutional
variables is that these are endogenous in growth models. This problem
is compounded when institutions are included in a model that has
variables such as human capital and trade openness. Initial studies
acknowledged this problem but did not tackle it owing to non-
availability of appropriate instruments for institutions (Barro, 1991;
Edwards and Tabellini, 1991).
A popular method to tackle the endogeneity is the Generalized
Method of Moments (GMM). The GMM estimator is as an extension of
Instrumental Variable (IV) methodology. The main advantage of GMM
estimation is that the model needs not be homoscedastic and serially in-
dependent. Another advantage of the GMM estimation is that it finds
the parameter estimates by maximizing an objective function which in-
cludes the moment restriction that the correlation between the error
term and the lagged regressor is zero. In essence, the GMM takes into
account the time series dimension of the data, non-observable country
specific effects, inclusion of lagged dependent variables among the ex-
planatory variables and the possibility that all explanatory variables
are endogenous (Bond et al., 2001; Caselli et al., 1996). In particular,
the system GMM, developed by Arellano and Bover (1995) and
Blundell and Bond (1998) and applied by Bond et al. (2001) to the
growth equation, was found to reduce a small sample bias that charac-
terizes the first differenced GMM used by Caselli et al. (1996). Keeping
this in view, we employ SYS-GMM.
4. Results and discussion
Table 2 shows the impact of various institutions on the economic
growth for the full sample of low as well as high income countries4.
The analysis shows that the government stability exercises positive
impact on economic growth in the full sample. This implies that a coun-
try with a more stable government performs better in speeding up the
3
The descriptive statistics of the variables are presented in the appendix Table A1.
4
The detailed results are presented in the Appendix Tables A2 to A7.
 S. Nawaz / Economic Modelling 45 (2015) 118–126 121

Table 1
Conceptual definitions and range of indictors.
Source: ICRG (2014).

Indicators Conceptual definitions

Government stability This captures risk linked with the government's ability to stay in office and carry out its declared programs through government
unity, legislative strength and public support. Ranges between 0 (very high risk) and 12 (very low risk).
Investment profile This is an assessment of factors affecting the risk to investment including contract viability and expropriation, profit repatriation
and payment delays. Ranges between 0 (very high risk) and 12 (very low risk).
Control over corruption This is an assessment of corruption within the political system that causes distortion in the economic and financial system, reduces
the efficiency of public as well as private sector by enabling the people to hold positions of power through patronage rather than
ability and creates instability in political system. Ranges between 0 (very high risk) and 6 (very low risk).
Law and order This is an assessment of the strength and impartiality of the legal system and also the public observance of law. Ranges between
0 (very high risk) and 6 (very low risk).
Democratic accountability This is an assessment of how responsive government is to its people, by assuming that the less responsive it is, the more likely it is
that the government will fall, peacefully in a democratic society, but possibly violently in a non-democratic one. Ranges between
0 (very high risk) and 6 (very low risk).
Bureaucracy quality This is an assessment of strengths and expertise of bureaucracy to govern independently and tend to be autonomous from political
pressure. Ranges between 0 (very high risk) and 4 (very low risk).

economic growth. The positive impact of government's stability leads to Tabellini (1990) and Alesina et al. (1996) argue that foreign investors
policy stability which encourages the entrepreneurs to invest with also prefer a stable government environment, with less policy uncer-
confidence — without fearing sudden policy reversals. Alesina and tainty. These uncertainties lead to economic inefficiencies hence a low
economic growth. Aisen and Veiga (2013) found similar results. This
study argues that a higher degree of political stability is associated
Table 2 with a higher growth rate of GDP per capita. Government stability
Impact of various institutions on economic growth: dependent variable (GDP per capita
growth).
leads to higher economic growth by increasing the rate of productivity
as well as physical and human capital accumulation. Further analysis
Variables Fixed effect SYSGMM shows that government stability is important in promoting economic
Country Country and growth at all stages of development. In low income countries the esti-
specific time specific mated coefficient of government stability is 0.035 and in high income
Full sample countries the coefficient comes to 0.096. One reason behind the higher
Government stability 0.086 0.108 0.080 growth in developed countries, maybe the other factors that correspond
(0.05)⁎ (0.06)⁎ (0.04)⁎ with the stability factor and create a greater impact in developed econo-
Investment profile 0.157 0.148 0.212
(0.08)⁎⁎ (0.09)⁎ (0.10)⁎⁎
mies, could be their abundance and a better quality in those economies.
Control over corruption 0.109 0.171 0.118 The results suggest that the role of investment profile is very impor-
(0.06)⁎ (0.10)⁎ (0.07)⁎ tant in determining the long-run economic growth of the economies.
Law and order 0.198 0.391 0.230 For the full sample, the estimated coefficient is 0.21, statistically signif-
(0.10)⁎⁎ (0.19)⁎⁎ (0.13)⁎
icant at 5%. For low income countries the estimated coefficient is 0.44
Democratic accountability 0.233 0.220 0.317
(0.11)⁎⁎ (0.12)⁎ (0.15)⁎⁎ (statistically significant at 5%) while for high income countries the coef-
Bureaucracy quality 0.279 0.335 0.272 ficient is 0.16 (statistically significant at 5%). The results imply that im-
(0.16)⁎ (0.20)⁎ (0.15)⁎ provement in the investment profile increase growth and that the
Low income impact of the improvement is larger in developing countries. One rea-
Government stability 0.097 0.159 0.035 son for the lesser positive impact of investment profile in developed
(0.05)⁎⁎ (0.13) (0.02)⁎ economies could be that these economies have already reaped the ben-
Investment profile 0.300 0.332 0.437 efits of improvement in their investment profile and, therefore, the
(0.18)⁎ (0.16)⁎ (0.21)⁎⁎
Control over corruption 0.088 0.174 0.038
room for further improvement in this respect is now limited, in a rela-
(0.16) (0.10)⁎ (0.02)⁎ tive sense. These findings signify the role of institutions that attract in-
Law and order 0.080 0.445 0.115 vestment, especially foreign investment. Developing countries have
(0.04)⁎⁎ (0.22)⁎⁎ (0.07)⁎ failed to attract as much foreign investment as the developed countries
Democratic accountability 0.176 0.157 0.360
attract. The lack of suitable institutional framework in the developing
(0.10)⁎ (0.22) (0.19)⁎
Bureaucracy quality 0.076 0.142 0.153 economies could be one of the major reasons. For example, Ghani
(0.04)⁎ (0.34) (0.09)⁎ et al. (2010) show that the major bottleneck faced by developing econ-
omies in attracting FDI is the low institutional quality. With the quality
High income
Government stability 0.124 0.026 0.096 of investment profile being low in developing countries, there is a great-
(0.07)⁎ (0.09) (0.05)⁎ er room for such improvement in investment profile that stimulates
Investment profile 0.171 0.075 0.156 growth. Unannounced and unplanned policy reversals and weak rule
(0.07)⁎⁎ (0.10) (0.06)⁎⁎⁎ of law in developing countries discourage foreign investors in such
Control over corruption 0.117 0.012 0.068
countries. They instead prefer to invest in countries with stable policies
(0.06)⁎⁎ (0.15) (0.04)⁎
Law and order 0.162 0.328 0.179 and consistent economic growth.
(0.20) (0.18)⁎ (0.10)⁎ The impact of ‘control over corruption’ on growth is positive in the full
Democratic accountability 0.258 0.230 0.277 sample as well as in the samples disaggregated by the level of income. The
(0.15)⁎ (0.19) (0.14)⁎⁎
coefficient for ‘control of corruption’ is larger in high income countries
Bureaucracy quality 0.442 0.395 0.708
(0.22)⁎⁎ (0.32) (0.23)⁎⁎⁎ (0.068) as compared to low income countries (0.038). Our findings are
in line with the literature (Mauro, 1995; Podobnik et al., 2008). These
Note: Robust standard errors are in parentheses.
⁎ Denotes significance at the 10% level. findings suggest that better institutional framework for controlling cor-
⁎⁎ Denotes significance at the 5% level. ruption boosts economic activities. Political bureaucratic systems with
⁎⁎⁎ Denotes significance at the 1% level. minimal corruption generate more economic growth owing to a number
122 S. Nawaz / Economic Modelling 45 (2015) 118–126

of reasons, such as: smooth and transparent economic and financial envi-
ronment, increased government and a reduced instability of the political
process. Various arguments have been put forth to establish the negative
relationship between corruption and economic growth. For example,
Murphy et al. (1993) argue that allocation of resources to rent-seeking ac-
tivities reduce economic growth. Romer (1994) also suggests that corrup-
tion can be viewed as a tax on ex-post profits which may reduce certain
forms of investment. We may mention here that the positive relation
that we found should be considered in the context, ‘control of corruption’
rather corruption per se as the explanatory variable.
Smooth law and order situation has a positive impact on the eco-
nomic growth in the full sample. The impact of law and order on the
economic growth is greater in high income countries relative to low in-
come countries. The results clearly suggest that well defined and appro-
priately enforced rule of law is growth-enhancing. The results are in
conformity with Barro (1998). Better law and order situation promotes
businesses through enhancing the confidence of investors by minimiz-
ing uncertainties. If the rule of law is not upheld strongly, transaction
costs would certainly be higher and private firms would typically oper-
ate on a small scale and may even rely on corruption to facilitate their
operation, thereby causing a lower economic growth.
The results show that democratic accountability has a positive asso-
ciation with growth in GDP per capita. Numerous studies have found
similar results (Helliwell, 1994; Rodrik, 2000). Empirically, we found
that the democratic institutions perform better in fostering economic
growth in developing countries as compared to developed countries.
Various reasons may be advanced for the positive influence of demo-
cratic accountability on economic growth. With weak democratic insti-
tutions, politicians and public officials have fewer checks on their
power, making it easier for them to engage in rent seeking. Democracy
also allows citizens to periodically evict politicians who are thought to
have damaged the economy (Drury et al., 2006). By making the political
authority contestable, democracy can also facilitate the competing away
of monopoly rents. Rodrik (2000) argues that the better quality of dem-
ocratic institutions promote economic growth by allowing stability and
accountability in the system. The impact of democratic institutions on
economic growth varies with the stages of development. Results show
that the democratic institutions perform better in fostering economic
growth in developing countries as compared to developed ones.
The quality of bureaucracy has a positive impact on the economic
growth in full sample. The quality of bureaucracy has a positive impact
on the economic growth in both the developed and developing econo-
mies implying that efficient bureaucracy promotes economic growth.
The quality of bureaucracy works as a shock absorber which minimizes
policy reversal upon the change of government. Efficient bureaucracy
tends to be somewhat autonomous from political pressure and, typical-
ly, has a well-established mechanism for recruitment and training. Sim-
ilarly, the impact of bureaucratic quality is positive in both low and high
income countries, with the impact being greater in high income coun-
tries. The positive association between bureaucratic quality and
economic growth is in confirmatory with the literature (Henderson
et al., 2007; Lovett, 2011; Portes and Smith, 2008). Lovett (2011) argues
that more efficient bureaucratic structures will attract more private in-
vestment — the primary source for the economic growth. The economic
growth is mainly defined by the delivery of collective goods. These
a disaggregate level. To estimate the model, we have used a ‘fixed effects’
and SYS-GMM estimation techniques. We have examined the impact of
different institutions including: government stability, investment profile,
corruption-control, law and order, democratic accountability and
bureaucratic quality on the economic growth. We also examined as to
what types of institutions are more effective in developed countries
and which ones are effective in developing economies.
The empirical estimation of the effects of institutions, on the eco-
nomic growth, shows that the improvement in institutional quality
leads to an acceleration in growth. The analysis also reveals that the
impact of institutions on growth is relatively greater in developed coun-
tries as compared to the developing countries. Further, the results show
that a government's stability has a positive impact on the economic
growth and that the impact is greater in developed countries. Our
results also show that the economic growth is positively linked with
the good quality of administration across institutions. The measures
used to assess the impact of administrative quality show that control
over corruption, the good quality of bureaucracy, investment profile,
and law and order influences the development process of different
countries differently. The positive impact of improvement in control
over corruption, bureaucratic quality and law and order on economic
growth is greater in high income countries relative to low income
countries. On the other hand, the positive impact of improvement in
investment profile is greater in developing countries as compared to de-
veloped countries. Probably the developed countries had already reaped
most of the gains possible from improvement in investment profile.
Finally, we found that the impact of improvement in democratic account-
ability on economic growth is positive and is again greater in developed
economies. Overall, the results suggest that the developed countries
gain more from further improvement in the institutional quality.
5.1. Policy implications
The following policy implications emerge from the empirical analysis:
i) Institutions being the fundamental determinant of economic
growth, to achieve high and sustainable growth, institutional
quality needs to be strengthened. We have found that institutions
are associated with more sustainable economic development for
both developed and developing economies.
ii) Moreover, the degree of the impact of different institutions being
different across countries, the local conditions, especially the
development stage of an economy, should receive paramount
consideration while designing institutional reforms.
iii) Different countries require different sets of institutions to promote
the long-run economic growth. The domestic environment plays a
crucial role in designing appropriate institutions.
Appendix A
Table A1
Descriptive statistics: Institutional and other variables.
Source: Author's own calculation.

goods are the services that the bureaucracy provides, such as business Variable Observations Mean Std. dev. Min. Max.
regulation, assistance or barriers to entering an industry, and requisite GDP per capita growth rate 336 2.3 3.3 −9.8 13.0
infrastructure. Efficient provision of these services generates positive Govt. spending/GDP 336 25.6 12.0 3.4 65.2
economic growth. Evans and Rauch (1999) conclude that bureaucratic Inflation 336 44.7 439.3 −9.6 481.7
quality significantly enhances prospects for the economic growth, even Government stability 336 7.53 2.25 1.00 12.96
Investment profile 336 7.47 2.45 1.13 12.00
when we control for initial level of GDP per capita and human capital.
Control over corruption 336 3.43 1.55 0.00 6.25
Law and order 336 3.85 1.61 0.00 6.34
5. Concluding remarks Democratic accountability 336 4.29 1.58 0.00 6.00
Bureaucratic quality 336 2.55 1.21 0.00 4.00
Using a panel of 56 developing and developed countries, this study Physical capital 336 21.2 5.7 2.0 45.4
Human capital 336 3.0 1.2 0.6 5.7
has offered an empirical analysis of the growth effects of institutions at
 S. Nawaz / Economic Modelling 45 (2015) 118–126 123

Table A2
Impact of government stability: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

GS_I 0.086 0.108 0.080 0.097 0.159 0.035 0.124 0.026 0.096
(0.05)⁎ (0.06)⁎ (0.04)⁎ (0.05)⁎⁎ (0.13) (0.02)⁎ (0.07)⁎ (0.09) (0.05)⁎
GDPPC(−1) −4.527 −4.963 −5.279 −4.453 −4.590 −5.061 −6.823 −8.757 −6.092
(1.44)⁎⁎⁎ (1.62)⁎⁎⁎ (1.73)⁎⁎⁎ (1.63)⁎⁎ (1.65)⁎⁎ (2.11)⁎⁎ (1.42)⁎⁎⁎ (1.69)⁎⁎⁎ (1.77)⁎⁎⁎
Human capital 1.591 0.916 1.697 3.090 2.299 2.673 1.887 1.094 1.462
(0.66)⁎⁎ (0.91) (0.74)⁎⁎ (0.58)⁎⁎⁎ (1.46) (0.91)⁎⁎⁎ (0.70)⁎⁎ (0.73) (0.78)⁎
Physical capital 0.167 0.161 0.199 0.158 0.133 0.207 0.119 0.115 0.171
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎
Inflation −0.000 −0.001 −0.0003 −0.013 −0.012 −0.011 −0.000 −0.000 −0.0004
(0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.01)⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.039 −0.038 0.013 −0.066 −0.079 −0.032 0.047 0.061 0.056
(0.03) (0.03) (0.04) (0.02)⁎⁎⁎ (0.02)⁎⁎⁎ (0.02)⁎ (0.03)⁎ (0.03)⁎⁎ (0.03)⁎
Developed eco. 15.866
(7.88)⁎⁎
Low_Mid_Inc 5.392
(4.29)
High_Inc 10.357
(3.38)⁎⁎⁎
GDPPC growth(−1) −0.328 −0.254 −0.234
(0.06)⁎⁎⁎ (0.10)⁎⁎ (0.06)⁎⁎⁎
Constant 30.363 35.666 25.070 21.835 23.054 21.525 52.845 73.267 40.175
(10.42)⁎⁎⁎ (12.97)⁎⁎⁎ (9.46)⁎⁎⁎ (9.99)⁎⁎ (11.65)⁎ (11.48)⁎ (11.24)⁎⁎⁎ (14.27)⁎⁎⁎ (12.30)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 47.34 32.31 490.7 45.24 8.60 447.7 25.04 20.72 773.8
AR1 test 0.0274 0.0207 0.0128
AR2 test 0.2483 0.2321 0.7581

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.

Table A3
Impact of investment profile: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

IP_I 0.157 0.148 0.212 0.300 0.332 0.437 0.171 0.075 0.156
(0.08)⁎⁎ (0.09)⁎ (0.10)⁎⁎ (0.18)⁎ (0.16)⁎ (0.21)⁎⁎ (0.07)⁎⁎ (0.10) (0.06)⁎⁎⁎
GDPPC(−1) −4.888 −5.147 −5.481 −4.442 −4.639 −4.625 −7.578 −8.813 −6.928
(1.65)⁎⁎⁎ (1.80)⁎⁎⁎ (1.74)⁎⁎⁎ (1.66)⁎⁎ (1.80)⁎⁎ (1.85)⁎⁎ (1.50)⁎⁎⁎ (1.70)⁎⁎⁎ (1.90)⁎⁎⁎
Human capital 1.407 1.004 1.341 2.338 2.358 1.796 1.731 1.158 1.312
(0.66)⁎⁎ (0.87) (0.68)⁎⁎ (0.54)⁎⁎⁎ (1.42) (0.81)⁎⁎ (0.71)⁎⁎ (0.74) (0.81)
Physical capital 0.162 0.160 0.194 0.151 0.136 0.201 0.108 0.109 0.159
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎ (0.03)⁎⁎⁎
Inflation −0.000 −0.001 −0.0004 −0.010 −0.011 −0.008 −0.000 −0.000 −0.0004
(0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.005)⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.029 −0.029 0.016 −0.051 −0.058 −0.024 0.057 0.064 0.054
(0.03) (0.03) (0.04) (0.02)⁎⁎ (0.02)⁎⁎⁎ (0.01)⁎ (0.03)⁎ (0.05) (0.03)⁎
Developed eco. 16.633
(7.98)⁎⁎
Low_Mid_Inc 4.760
(3.57)
High_Inc 11.832
(3.68)⁎⁎⁎
GDPPC growth(−1) −0.336 −0.295 −0.241
(0.06)⁎⁎⁎ (0.10)⁎⁎⁎ (0.06)⁎⁎⁎
Constant 33.175 36.456 26.375 21.216 23.042 18.399 59.884 74.189 47.251
(12.29)⁎⁎⁎ (14.34)⁎⁎ (9.55)⁎⁎⁎ (10.16)⁎⁎ (12.04)⁎ (10.70)⁎ (12.00)⁎⁎⁎ (14.58)⁎⁎⁎ (13.46)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 55.72 36.68 561.4 52.25 45.10 396.5 41.40 21.57 820.0
AR1 test 0.0278 0.0061 0.0344
AR2 test 0.2808 0.2231 0.8810

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.
124 S. Nawaz / Economic Modelling 45 (2015) 118–126

Table A4
Impact of control over corruption: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

CC_I 0.109 0.171 0.118 0.088 0.174 0.038 0.117 0.012 0.068
(0.06)⁎ (0.10)⁎ (0.07)⁎ (0.16) (0.10)⁎ (0.02)⁎ (0.06)⁎⁎ (0.15) (0.04)⁎
GDPPC(−1) −4.403 −4.985 −5.277 −4.432 −4.606 −5.139 −6.578 −8.730 −5.608
(1.46)⁎⁎⁎ (1.69)⁎⁎⁎ (1.73)⁎⁎⁎ (1.65)⁎⁎ (1.79)⁎⁎ (2.19)⁎⁎ (1.44)⁎⁎⁎ (1.69)⁎⁎⁎ (1.78)⁎⁎⁎
Human capital 1.815 0.885 1.848 3.109 2.133 2.859 1.887 1.086 1.330
(0.64)⁎⁎⁎ (0.89) (0.78)⁎⁎ (0.57)⁎⁎⁎ (1.44) (0.98)⁎⁎⁎ (0.73)⁎⁎ (0.73) (0.76)⁎
Physical capital 0.171 0.164 0.201 0.157 0.137 0.206 0.135 0.118 0.180
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.05)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎
Inflation −0.000 −0.001 −0.0003 −0.013 −0.012 −0.011 −0.000 −0.000 −0.0004
(0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎ (0.00)⁎⁎⁎ (0.0⁎⁎⁎ (0.005)⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.044 −0.039 0.051 −0.070 −0.083 −0.039 0.036 0.060 0.028
(0.03) (0.03) (0.04) (0.03)⁎⁎ (0.02)⁎⁎⁎ (0.02)⁎ (0.02)⁎ (0.05) (0.02)⁎
Developed eco. 15.356
(7.86)⁎
Low_Mid_Inc 5.465
(4.36)
High_Inc 9.755
(3.51)⁎⁎⁎
GDPPC growth(−1) −0.336 −0.248 −0.266
(0.06)⁎⁎⁎ (0.10)⁎⁎ (0.06)⁎⁎⁎
Constant 29.001 35.859 25.275 21.503 25.506 21.870 51.987 74.436 37.743
(10.90)⁎⁎ (13.78)⁎⁎ (9.50)⁎⁎⁎ (10.21)⁎⁎ (13.18)⁎ (11.74)⁎ (11.78)⁎⁎⁎ (14.50)⁎⁎⁎ (12.42)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 49.30 34.50 428.6 42.15 43.01 475.6 20.70 18.29 696.9
AR1 test 0.0215 0.0204 0.0369
AR2 test 0.3057 0.2617 0.9708

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.

Table A5
Impact of law and order: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

LO_I 0.198 0.391 0.230 0.080 0.445 0.115 0.162 0.328 0.179
(0.10)⁎⁎ (0.19)⁎⁎ (0.13)⁎ (0.04)⁎⁎ (0.22)⁎⁎ (0.07)⁎ (0.20) (0.18)⁎ (0.10)⁎
GDPPC(−1) −4.474 −5.128 −5.320 −4.477 −4.882 −5.093 −6.389 −8.909 −5.733
(1.47)⁎⁎⁎ (1.72)⁎⁎⁎ (1.73)⁎⁎⁎ (1.67)⁎⁎ (1.91)⁎⁎ (2.14)⁎⁎ (1.36)⁎⁎⁎ (1.49)⁎⁎⁎ (1.72)⁎⁎⁎
Human capital 1.708 0.678 1.716 3.046 1.915 2.696 1.918 0.936 1.291
(0.66)⁎⁎ (0.87) (0.75)⁎⁎ (0.58)⁎⁎⁎ (1.47) (0.86)⁎⁎⁎ (0.65)⁎⁎⁎ (0.66) (0.74)⁎
Physical capital 0.168 0.158 0.196 0.156 0.122 0.204 0.133 0.115 0.176
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎ (0.05)⁎⁎ (0.05)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎
Inflation −0.000 −0.001 −0.0003 −0.013 −0.014 −0.011 −0.000 −0.000 −0.0004
(0.00)⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.005)⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.041 −0.036 0.008 −0.064 −0.069 −0.032 0.034 0.054 0.024
(0.03) (0.03) (0.04) (0.02)⁎⁎ (0.02)⁎⁎⁎ (0.02)⁎ (0.05) (0.03)⁎ (0.01)⁎⁎
Developed eco. 15.186
(7.79)⁎
Low_Mid_Inc 5.564
(4.43)
High_Inc 9.844
(3.25)⁎⁎⁎
GDPPC growth(−1) −0.342 −0.255 −0.269
(0.06)⁎⁎⁎ (0.10)⁎⁎ (0.06)⁎⁎⁎
Constant 29.504 36.567 25.693 21.813 25.931 21.528 49.051 73.909 38.643
(10.50)⁎⁎⁎ (13.77)⁎⁎ (9.24)⁎⁎⁎ (10.03)⁎⁎ (13.10)⁎ (11.19)⁎ (10.61)⁎⁎⁎ (12.31)⁎⁎⁎ (11.90)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 59.92 68.61 588.4 40.97 37.96 535.6 27.74 67.97 824.9
AR1 test 0.0208 0.0198 0.0735
AR2 test 0.2804 0.2707 0.7663

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.
 S. Nawaz / Economic Modelling 45 (2015) 118–126 125

Table A6
Impact of democratic accountability: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

DA_I 0.233 0.220 0.317 0.176 0.157 0.360 0.258 0.230 0.277
(0.11)⁎⁎ (0.12)⁎ (0.15)⁎⁎ (0.10)⁎ (0.22) (0.19)⁎ (0.15)⁎ (0.19) (0.14)⁎
GDPPC(−1) −4.380 −4.837 −5.087 −4.396 −4.592 −4.626 −6.174 −8.235 −5.494
(1.47)⁎⁎⁎ (1.70)⁎⁎⁎ (1.59)⁎⁎⁎ (1.63)⁎⁎ (1.77)⁎⁎ (1.78)⁎⁎⁎ (1.50)⁎⁎⁎ (1.75)⁎⁎⁎ (1.75)⁎⁎⁎
Human capital 1.626 0.908 1.621 3.013 2.430 2.598 1.718 1.005 1.122
(0.64)⁎⁎ (0.87) (0.72)⁎⁎ (0.58)⁎⁎⁎ (1.44) (0.86)⁎⁎⁎ (0.65)⁎⁎ (0.71) (0.71)
Physical capital 0.166 0.163 0.201 0.153 0.138 0.202 0.129 0.114 0.182
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.04⁎⁎⁎ (0.04)⁎⁎⁎ (0.05)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎
Inflation −0.000 −0.001 −0.0004 −0.013 −0.013 −0.011 −0.000 −0.000 −0.0005
(0.00)⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.005)⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.037 −0.033 0.003 −0.063 −0.072 −0.042 0.042 0.063 0.033
(0.03) (0.03) (0.04) (0.03)⁎⁎ (0.02)⁎⁎⁎ (0.02)⁎⁎ (0.05) (0.03)⁎⁎ (0.02)⁎
Developed eco. 14.700
(7.34)⁎⁎
Low_Mid_Inc 4.684
(3.60)
High_Inc 9.068
(3.40)⁎⁎⁎
GDPPC growth(−1) −0.356 −0.291 −0.288
(0.06)⁎⁎⁎ (0.11)⁎⁎⁎ (0.06)⁎⁎⁎
Constant 28.683 34.751 23.931 21.029 23.635 18.709 47.099 69.406 36.629
(10.63)⁎⁎⁎ (13.94)⁎⁎ (8.42)⁎⁎⁎ (9.69)⁎⁎ (11.81)⁎ (9.94)⁎ (12.27)⁎⁎⁎ (15.67)⁎⁎⁎ (12.36)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 45.14 30.33 444.1 30.98 22.41 353.3 18.50 16.90 539.4
AR1 test 0.0208 0.0123 0.0304
AR2 test 0.1776 0.1762 0.6263

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.

Table A7
Impact of bureaucratic quality: Dependent variable (GDP per capita growth).

Variables Full sample Low income High income

Fixed effect SYSGMM Fixed effect SYSGMM Fixed effect SYSGMM

C C&T C C&T C C&T

BQ_I 0.279 0.335 0.272 0.076 0.142 0.153 0.442 0.395 0.708
(0.16)⁎ (0.20)⁎ (0.15)⁎ (0.04)⁎ (0.34) (0.09)⁎ (0.22)⁎⁎ (0.32) (0.23)⁎⁎⁎
GDPPC(−1) −4.565 −5.159 −5.171 −4.489 −4.721 −4.797 −6.398 −8.642 −5.316
(1.51)⁎⁎⁎ (1.80)⁎⁎⁎ (1.73)⁎⁎⁎ (1.71)⁎⁎ (1.89)⁎⁎ (2.09)⁎⁎ (1.46)⁎⁎⁎ (1.71)⁎⁎⁎ (1.74)⁎⁎⁎
Human capital 1.782 0.875 1.667 3.083 2.178 2.531 1.934 1.104 1.173
(0.67)⁎⁎⁎ (0.89) (0.74)⁎⁎ (0.62)⁎⁎⁎ (1.46) (0.86)⁎⁎⁎ (0.66)⁎⁎⁎ (0.71) (0.64)⁎
Physical capital 0.171 0.165 0.201 0.158 0.139 0.207 0.136 0.120 0.191
(0.03)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.05)⁎⁎⁎ (0.03)⁎⁎⁎ (0.04)⁎⁎⁎ (0.03)⁎⁎⁎
Inflation −0.000 −0.000 −0.0004 −0.013 −0.013 −0.011 −0.000 −0.000 −0.0004
(0.00)⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.005)⁎⁎ (0.00)⁎⁎⁎ (0.00)⁎⁎⁎ (0.0001)⁎⁎⁎
Govt. spending −0.044 −0.040 0.005 −0.067 −0.077 −0.032 0.037 0.059 0.035
(0.03) (0.03) (0.04) (0.02)⁎⁎⁎ (0.02)⁎⁎⁎ (0.02)⁎ (0.02)⁎ (0.05) (0.02)⁎
Developed eco. 14.919
(7.73)⁎
Low_Mid_Inc 5.300
(4.11)
High_Inc 8.262
(3.06)⁎⁎⁎
GDPPC growth(−1) −0.336 −0.255 −0.285
(0.06)⁎⁎⁎ (0.10)⁎⁎⁎ (0.06)⁎⁎⁎
Constant 30.076 37.605 24.948 21.931 25.323 20.670 48.271 72.220 34.374
(10.95)⁎⁎⁎ (14.63)⁎⁎ (9.32)⁎⁎⁎ (10.32)⁎⁎ (13.36)⁎ (11.30)⁎ (11.46)⁎⁎⁎ (14.43)⁎⁎⁎ (12.07)⁎⁎⁎
Observations 280 280 280 110 110 110 170 170 170
F/Wald Chi2 value 61.26 41.90 539.5 48.12 37.23 621.3 29.64 26.17 596.8
AR1 test 0.0270 0.0212 0.0483
AR2 test 0.2707 0.2498 0.7006

Note: Robust standard errors are in parentheses. C = Country specific and C & T = Country and time specific.
⁎ Denotes significance at the 10% level.
⁎⁎ Denotes significance at the 5% level.
⁎⁎⁎ Denotes significance at the 1% level.
126 S. Nawaz / Economic Modelling 45 (2015) 118–126
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