The Economic Value of Institutional Reform:

International Evidence Across Regions


Economic Growth and Development builds inherently on how institutions manage risk. In the early European voyages of discovery, risk was highly centralized around centralized political authority. While Spain and Portugal had early leads in voyages of discovery, their economic power was eclipsed not long after by rivals in England and Holland, and later by the United States, among others. One reason why this was so was that the Dutch pioneered in the development of the modern corporation and institutional stock exchanges to manage the underlying levels of risk. Since then, other forms of risk have involved the creation of insurance contracts to handle contingencies in a broad array of circumstances.

For emerging and developing economies in the 21st century, successful globalization requires that they create effective institutions to manage risk. Since risk can take on economic, financial, political and environmental dimensions, crafting institutions to handle various types of risk is essential if globalization is to succeed.

We provide here a panel regression analysis of the determinants of aggregate country risk for a sample of 103 countries for the 1980-2002 time period. Dividing the countries into geographic regions, we explore through a nested panel regression model how aggregate country risk affects a country or region's level of per capita income.

Nested Panel Regression Model

Based on the global model, expected regression signs for each independent variable are shown next to the variable label. Below each variable is the 2-lag Granger causality test, followed by the corresponding null probability level in parentheses.

Panel Regression Direct and Indirect Effects of Aggregate Country Composite Risk

on PPP Per Capita Real GDP, 1980-2002 

Determinants of Economic Freedom and Democracy

Determinants of Aggregate Country Composite Risk

Determinants of Trade Dependency and Gross National Savings Rate

One Point Absolute Effects of An Increase in Designated Institutional Variables

One Point Relative Effects of An Increase in Designated Institutional Variables

Present Value Relative Effects of Given Unit Change in Institutional Variable at Real Interest Rate

One Point Net Effects on PPP PC GDP

One Point Net Effects on Present Value of PPP PC GDP

Panel Sample

Variable Descriptive Statistics

(global sample)

Variable Definitions and Sources


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