Industrial Growth and the Quality of Institutions: What Do (Transition) Economies Have to Gain from the Rule of Law?

Abstract

The paper attempts to empirically test the link between Institutional Quality Indicators and Industrial Growth. We found significant evidence of the effect of the above indicators on Industrial Growth in 27 Asian and Latin American countries. The results suggest that developed legal and regulatory framework work their way to industrial growth both through investment and Total Factor Productivity. The findings are robust with respect to the type of institutional quality measures used in the analysis. The main policy recommendation made in the paper is that institution building in Transition Countries should be an essential complementary measure to accompany privatization, flow of public and private investments in education and R&D, and measures promoting Foreign Direct Investment.

Veto Players and the Rule of Law in Emerging Democracies

“…On a scale from 1 to 6, Andrews,Montinola / EMERGING DEMOCRACIES 73 9. Recent studies use this same measure for the rule of law, including Barro (2000); LaPorta et al, (1999); and Grigorian and Martinez (2000).…”

“…Some, such as Poland and Hungary, have clearly been more successful than others, such as Russia. Recent studies suggest that emerging democracies that have prospered have done so because market reforms were underpinned by the rule of law (Dethier, Ghanem, & Zoli, 1999;Grigorian & Martinez, 2000;Sachs & Pistor, 1997). Although there is little disagreement over this beneficial consequence of the rule of law, few studies have approached systematically the question of its sources.…”

Institutions and Economic Performance: A Review of the Theory and Evidence

“…Grigorian, D. et al (2000) Tests the link between industrial growth and indicators of institutional quality.…”

Institutional environment and firms' sources of financial capital in Central and Eastern Europe

“…Khanna and Palepu's (1997) study carved dimensions of the institutional environment as capital market, labor market, product market, government regulation, and contract enforcement. Grigorian and Martinez (2001) built measures of institutional quality and contract enforcement, and utilized five indicators of political risk: government repudiation of contracts, risk of expropriation, corruption, bureaucratic quality, and rule of law. Newman (2000) focuses on the political, legal, and regulatory dimensions.…”