The relationship between institutional quality and economic growth: A review on BRICS-T countries

Economic history has witnessed many approaches that try to explain the reasons for development differences between countries. At the beginning of these approaches are the differences in physical capital and technological progress put forward by R. Solow in the 1950s. But these two variables fell short of explaining why some countries are richer and some poorer. At this point, it is necessary to increase the physical capital, create the technological infrastructure, increase the production capacity, etc. The issue that events may be related to the functioning of institutions has come to the fore. There is a large literature on the subject that institutions are the structures that regulate social and economic life and that they are the basis of sustainable economic growth. In order to find an answer to the question of how institutions and institutional quality affect the economic performance of countries, Brazil, Russia, India, China, South Africa and Turkey (BRICS-T) countries with identical economic structures were examined in the study. Panel Data Analysis methods were used in the study, in which annual data for the 2002-2020 period were used. The institutional quality indicators in the study, taken from the World Governance Indicators, are government effectiveness (GE), political stability and non-violence (PS), rule of law (RL), regulatory quality (RQ), freedom of expression and accountability (VA) and corruption control (CC). In the study, according to the PVECM (Long Term) causality test results, a causal relationship was found from institutional quality factors to economic growth in the long run. According to Emirmahmutoğlu and Köse (2011) panel causality test results, there is a causality relationship from a different institutional quality factor to growth in each country. In general, we found that there is causality running from political stability and non-violence (PS), freedom of expression and accountability (VA) and regulatory quality (RQ) to growth. Finally, institutional quality factors that positively affect the economic growth of countries were found to be regulatory quality (RQ), corruption control (CC) and rule of law (RL).