Does Governance Matter? Evidence from BRICS

The role of governance is widely debated in the process of economic development. The current study focuses on examining the growth and the governance relationship for BRICS countries utilizing the annual balanced panel data for the period spanning from 1997 to 2015. Per capita real GDP growth is taken as a proxy for economic growth and six World Bank Governance Indicators are used as a measure of governance. Pedroni (2004, Econometric Theory, 20, 597-625) panel cointegration technique and fully modified ordinary least square (FMOLS) are used to look into a long-run equilibrium relationship. Dumitrescu and Hurlin's (2012, Economic Modelling, 29, 1450-1460) panel causality test is used as a short-run diagnostics test for long-run equilibrium relationship. The major findings of the study show that growth and governance are complementary to each other. In the long run, governance promotes and sustains high-income growth, whereas, in the short run, minimum economic development is required for better functioning of institutions.