Faculty Sponsor: Dr. Shyam Gouri Suresh
Recent economic literature and debates have considered institutions as an answer to the long-standing questions concerning economic growth, in particular, what policies can be used to promote better economic performance and what accounts for differences in GDP levels among countries. This Study uses cross-sectional data from 177 countries from 2007 to analyze the role of institutions in economic growth from 2007 to 2017. I use World Governance Indicator (WGI) institutional quality variables in addition to several common macroeconomic control variables to run several linear regressions. In attempting to unearth the complex effects of a country’s intuitions on economic growth I also observe the difference in growth across geographic regions and income status. My regressions have high multicollinearity between institutional quality variables and income classification dummy variables. Joint F-tests failed to deem institutional quality or human capital measures as statistically significant. Meanwhile, the natural log of initial GDP per capita and the regional dummy variables were significant to the 1 percent and 5 percent significance level respectively. The model was corrected for heteroskedasticity and a t-test found investment to have a significant positive effect on economic growth at the 10 percent significance level. Regressions excluding outliers suggest the results of my hypothesis tests are not robust. Difficulties accounting for the dynamic nature of economic growth in a static model and omitted variable bias both contribute to the low level of explanatory power within my model.