The impact of good governance on economic growth: The case of Türkiye

One of the primary goals of all countries is to increase their citizens' living standards by achieving economic growth. In this context, per capita real GDP is one of the key indicators of economic growth. Other conditions affecting these indicators naturally influence economic growth as well. This study examines the relationship between per capita real GDP and governance quality. The impact of good governance on per capita income is analyzed using the Nonlinear Autoregressive Distributed Lag Model (NARDL). In the model, GDP serves as the dependent variable (an indicator of economic growth), the YON variable represents the average of six global governance indicators publicly released by the World Bank (WB) as independent variables, and direct foreign investment (DYY), export volume index (IHI), and gross capital formation (BSO) are used as control variables. According to the estimation results, the existence of a co-integration relationship among the variables is investigated using the F boundary test, and the calculated F-statistic (4.24) exceeds the critical value (3.87), indicating the presence of a long-term relationship. When calculating the NARDL long-term coefficients, the coefficient for the positive governance index is -3.1489, while the coefficient for the negative governance index is -0.3022. These results indicate that a 1% increase in governance quality leads to approximately a 3.15% decrease in GDP, while a 1% decrease in governance index results in around a 0.30% decrease in GDP. This suggests that positive governance shocks decrease per capita income similarly to negative governance shocks. In other words, any positive shock to the governance index, which improves governance quality policies, reduces per capita income, and conversely, negative shocks in the governance index also decrease per capita income. This demonstrates an asymmetric relationship between governance quality and economic growth in the Turkish sample during the relevant period. Additionally, it was found that a 1% increase or decrease in the export volume index correlates with approximately a 0.60% change in GDP, a 1% change in foreign direct investment correlates with approximately a 0.11% change in GDP, and a 1% change in gross capital formation rate correlates with approximately a 0.10% change in GDP. These findings confirm the hypothesis of a relationship between governance quality and economic growth, illustrating an asymmetric relationship between good governance and economic growth in Turkey. In this context, increases or decreases in governance indicators have been shown to reduce the economic growth rate.