The growth effects of economic and political institutions: new evidence from spatial econometrics analysis using historical-based institutional matrix

This paper first proposes a theoretical framework outlining the links from the deep determinants of modern-day institutional environment towards the countries' economic performance, and second tests these links to find the evidence of the spatial spillover effects of institutional proximity on economic growth. Utilizing spatial fixed effects estimation on a sample of 85 countries over a period 1990-2019, and measuring the countries' spatial interdependence via both geographical and institutional proximities, this paper finds evidence on the presence of spillover effect of economic institutions and institutional proximity on countries' growth process. Specifically, this paper shows that institutionally similar countries (i.e. countries with similar legal and colonial origins) would have greater spatial growth effects than countries that are geographically closer, and the results are robust to various model specifications. The novel finding is with regard to the unique spatial dimension of growth based on the concept of institutional proximity which imply that the policymakers must not ignore a country's spatial interdependence; they must not be concerned with the development of institutional settings within their own country since there is a potential spillover effect of growth determinants from its neighbours, be it geographical or institutional.