Prague Economic Papers 2020, 29(6):672-687 | DOI: 10.18267/j.pep.749

Do Institutions Influence Economic Growth?

Klára Čermákováa, Pavel Procházkaa, Lucie Kurekováa, Jiří Rotschedla
a Prague University of Economics and Business, Faculty of Economics, Prague, Czech Republic

Economic growth has been the subject of much focus throughout the history of economic thought as it has profound economic, social and political consequences. The sources of economic cycles are surrounded by intense and controversial scientific dispute. In our article, we want to contribute to the institutional economics debate by analysing selected institutional factors and testing their influence on economic growth. On a 2012-2018 dataset, we prove that soft factors such as property rights, freedom of corruption, level of freedom on different markets and other components of the Index of Economic Freedom and legal framework explain the differences in GDP per capita dynamics across countries. We present new evidence on how institutional factors determine economic growth. Unlike previously conducted studies, we use panel data and a set of general control variables in an attempt to respect causal inference. Moreover, we show that the mainstream economic conviction - more economic freedom leads to higher economic growth - fails in some cases, and regulation does not always hamper economic growth.

Keywords: Institutions, institutional economics, economic growth, Index of Economic Freedom, soft factors of economic growth
JEL classification: E02, E17, E69

Received: April 2, 2019; Revised: December 16, 2019; Accepted: February 13, 2020; Prepublished online: June 24, 2020; Published: November 27, 2020  Show citation

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Čermáková, K., Procházka, P., Kureková, L., & Rotschedl, J. (2020). Do Institutions Influence Economic Growth? Prague Economic Papers, 29(6), 672-687. doi: 10.18267/j.pep.749
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