Is there any empirical studies which has used institutional quality as an external instrument for economic growth modelling. What could be the justification for this
State theory distinguishes between stable and fragile states; there is a whole range of indices in the international literature that describe the quality of institutional design. This essentially determines the social and economic success of a social system. Institutional fragility in the political sphere, corruption, the willingness of citizens and companies to evade taxes, unreliable administrations, extremist activities, etc. are all facts that threaten societies and set them back in development.
Literature:
https://www.researchgate.net/publication/321058935_Steuern_in_Fragilen_Staaten_-_Empfehlungen_fur_die_Entwicklungszusammenarbeit, pp.11.
https://www.researchgate.net/publication/328829797_Economic_Integration_and_Constitutional_Design_-_Governance_Problems_in_a_Globalizing_World_Lectures_for_the_Catedra_Theodor_Heuss_Mexico_City_2012
https://www.researchgate.net/publication/273966820_Taxes_Tax_Systems_and_Economic_Growth
Thanks so much @Hans-Georg Petersen , what I intend to ascertain is if institutional quality can be used as external instrument in a GMM or instrumental variable regression. If this is to be the case, institutional quality can only cause economic growth and not the other way round so the variables that affect economic growth doesn't affect institutional quality. Some articles claimed bi directional causality between institution quality and economic growth, while some believe only institutional quality can cause economic growth. I would love to know the articles that proved the latter and what was their justification or explanation for this especially in developing countries or Africa
Yes, there are several empirical studies that have used institutional quality as an external instrument for economic growth modeling. One example is the study by Acemoglu et al. (2001) which used institutional quality as an instrument for economic growth in a cross-country regression analysis.
The justification for using institutional quality as an external instrument is based on the argument that institutional quality is a key determinant of economic growth
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