Empirical studies on institutions, governance and economic growth: a review

Purpose - Since the mid-1980s focus has shifted from stabilization to economic growth as a national goal. A large number of studies have been undertaken to explain economic growth. It is intended to show that the current debate between those who claim only institutions matter to economic growth and others who claim that only governance matters is totally unproductive. Design/methodology/approach - Econometric methods are used to evaluate the recent empirical studies on linking the quality of institutions or governance to economic growth. Findings - It is shown that the empirical model specification as well as the estimation methods used by important studies are inappropriate. Research limitations/implications - Future research needs to incorporate not only the institutions, and governance but also the desire to save, invest and innovate to explain economic growth. Practical implication - The existing theories of economic growth do not fully capture the complex process of economic growth implying that these theories should not be used as a guide to the screening of developmental aid to the developing countries. Originality/value - The researchers need to change direction away from data mining and towards developing a better understanding of the growth process. Policy makers should be careful in crafting their policies.