Underlying the Relationship Between Governance and Economic Growth in Developed Countries

Abstract

This paper uses panel data from 31 developed countries over the period 2002 to 2018 by applying a generalized method of moments (GMM) and system generalized method of moments (Sys GMM), pooled OLS, fixed effect, and random effect to look at the effect of six indicators of governance on economic growth. The study finds direct significant effect of rule of law, control of corruption, and voice and accountability on economic growth of developed countries which indicate that developed countries’ economy increases due to increase in rule of law or control of corruption or voice and accountability. The study also finds indirect significant effect of government effectiveness, political stability, and regulatory quality on economic growth which imply decline in the economy of developed countries due to 1% increase in government effectiveness, political stability, and regulatory quality. The results of this study apparently demonstrate the importance of governance indicators to get better the developed countries’ economy.

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Acknowledgments

The authors would like to thank the anonymous reviewers and the editor of the journal for their very valuable comments and suggestions.

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Correspondence to Almalki Sultan Musaad O.

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Appendix

Appendix

Fig. 1
figure1

The sum of per capita of GDP in developed countries. Based on World Development Indicators, 2018

Fig. 2
figure2

The average of control of corruption in developed countries. Based on World Governance Indicators, 2018

Fig. 3
figure3

The average of government effectiveness in developed countries. Based on World Governance Indicators, 2018

Fig. 4
figure4

The average of political stability in developed countries. Based on World Governance Indicators, 2018

Fig. 5
figure5

The average of regulatory quality in developed countries. Based on World Governance Indicators, 2018

Fig. 6
figure6

The average of rule of law in developed countries. Based on World Governance Indicators, 2018

Fig. 7
figure7

The average of voice and accountability in developed countries. Based on World Governance Indicators, 2018

Table 4 List of developed countries included in this study

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Zhuo, Z., O, A., Muhammad, B. et al. Underlying the Relationship Between Governance and Economic Growth in Developed Countries. J Knowl Econ (2020). https://doi.org/10.1007/s13132-020-00658-w

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Keywords

  • Governance
  • Panel data
  • Economic growth
  • Dynamic model