Differences in institutional quality explain why some countries are wealthier than others
Substantial empirical evidence across multiple methodologies supports the view that institutional quality and governance capacity are key determinants of cross-country wealth and productivity differences.
The retrieved literature consistently supports the claim that differences in institutional quality explain wealth and productivity disparities between nations. Multiple studies utilizing cross-country panel data, structural equation modeling, and endogenous growth frameworks find a robust positive association between strong institutions (such as low transaction costs, strong rule of law, and efficient regulation) and higher economic growth and income levels. No papers refute this relationship.
Peter Howitt. Endogenous Growth and Cross-Country Income Differences. 2000. https://doi.org/10.1257/aer.90.4.829
Endogenous growth modeling demonstrates that institutional and parameter differences across countries generate permanent productivity and per capita income divergences.
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MITJA KOVAČ, ROK SPRUK. Institutional development, transaction costs and economic growth: evidence from a cross-country investigation. 2015. https://doi.org/10.1017/s1744137415000077
Cross-country panel regression analysis shows that higher transaction costs, reflecting weaker institutional development, exert a persistent and robust negative effect on economic growth.
Shahid Ali, Naved Ahmad. Does Institutional Quality Strengthen the Globalization-growth Nexus? A Cross Country Analysis. 2021. https://doi.org/10.21203/rs.3.rs-178902/v1
Empirical analysis reveals that the benefits of economic globalization on growth depend heavily on meeting a minimum threshold level of institutional quality.
Valdiglesias J. Regulatory Design and Long-Term Growth: Insights from China's Experience for Latin America.. 2026. https://doi.org/10.12688/f1000research.178466.2
Comparative panel-data analysis indicates that streamlined regulatory design and effective institutional coordination are decisive drivers of long-term economic performance.
Amjad Ali Hassan. Institutional Quality, Digital Human Capital, and Economic Performance: A Structural Equation Modeling Approach to Cross-country Analysis. 2026. https://doi.org/10.21203/rs.3.rs-10242134/v1
Structural equation modeling demonstrates that institutional quality exerts a strong, statistically significant direct effect on cross-country economic performance and total factor productivity.
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