Institutions and Economic Performance: What Can Be Explained?

38 Pages Posted: 25 Oct 2010

See all articles by Simon John Commander

Simon John Commander

London Business School; IZA Institute of Labor Economics

Zlatko Nikoloski

University College London


Institutions are now widely believed to be important in explaining performance. In this paper, we analyze whether commonly used measures of institutions have any significant, measurable impact on performance, whether of countries or firms. We look at three 'levels' of institutions and associated conjectures. The first concerns whether the political system affects performance. The second concerns whether the business and investment environment affects the performance of countries and the third concerns whether perceived business constraints directly affect the performance of firms. In all instances, we find little evidence of a robust link between widely used measures of institutions and our indicators of performance. We consider why this might be the case and argue that mis-measurement, mis-specification, complexity and non-linearity are all relevant factors.

Keywords: institutions, growth

JEL Classification: D24, L21, O12, P48

Suggested Citation

Commander, Simon John and Nikoloski, Zlatko, Institutions and Economic Performance: What Can Be Explained?. IZA Discussion Paper No. 5247. Available at SSRN:

Simon John Commander (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072

Zlatko Nikoloski

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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