Indices, Institutions and Economic Growth: In Search of Reliable Indicators (Recount)

Abstract

The ratings of economic and political institutions are well-known and widely used in the Social Science literature. These ratings are heavily relied on Experts' evaluations with subjective ordinal ranking (i.g., from -10 to 10 points). Such evaluations can be occasionally driven by ideological considerations. Much worse – they are essentially incompatible with each other, and therefore inapplicable in a comparative study at some one specific point in time chosen for observation (i.e., for a cross-section analysis). In this paper we propose two new indicators of institutional quality for 154 countries. These indicators are constructed in a way that minimizes the subjectivity of the evaluations. Only the presence or absence of a particular institutional phenomenon is identified. This puts much less weight on possible bias and makes it easy to verify. We show that these indices predict economic growth at least not worse, than those commonly used. The indicators proposed, include information about institutions that has been accumulated over a period of approximately two centuries and our expert’s evaluations are less vulnerable to political bias and provide better compatibility of the estimations of various experts for various countries.

Current version of the paper contains data analysis upgraded (based on the data published before July, 1, 2014).

Keywords: Rule of Law, Democracy, Limited Government, Institutions, Indicators, Economic growth

JEL Classification: P50, N40, O43