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The growth effects of institutional instability

Published online by Cambridge University Press:  07 November 2011

NICLAS BERGGREN ,
ANDREAS BERGH  and
CHRISTIAN BJØRNSKOV
NICLAS BERGGREN
Affiliation:
Research Institute of Industrial Economics (IFN), Stockholm, Sweden
ANDREAS BERGH*
Affiliation:
Research Institute of Industrial Economics (IFN), Stockholm, Sweden and Department of Economics, Lund University, Sweden
CHRISTIAN BJØRNSKOV
Affiliation:
Department of Economics and Business, Aarhus University, Denmark
*
*Email: [email protected]
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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.

Type
Research Article
Information
Journal of Institutional Economics , Volume 8 , Issue 2 , June 2012 , pp. 187 - 224
Copyright
Copyright © The JOIE Foundation 2011

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