The effect of governance on economic growth: Evidence from emerging countries

Emerging countries have achieved a significant improvement in annual growth and now constitute a considerable proportion of the world economy. These countries contain more than half of the world's population. For these reasons, studying the economies of these countries is a very important topic. This study aims to investigate the relationship between governance and economic development in emerging economies. Our research is based on the World Bank data for worldwide governance indicators of emerging economies from 2002 to 2018. The principal component analysis and generalized method of moments were applied to identify the relationship between the gross domestic product index as a dependent variable and the worldwide governance indicator as an independent variable and the foreign direct investment, inflation, and working-age population indicators as control variables. The experimental results showed that there was no significant relationship between governance and economic development. Based on these findings, it is emphasized that the countries in the sample should give more importance to governance. Keywords: Emerging market countries, Economic growth, Governance indicators, GMM, PCA