Institutional Development, Non-market Transaction Costs and Economic Growth: Evidence from a Cross-country Investigation
Abstract: This paper seeks to quantify the impact of non-market institutional transaction costs on cross-country economic performance. Our evidence from a cross-country panel data regression analysis reveals a persistent and robust negative effect of increasing transaction costs on the path of economic growth. The growth-enhancing effects of lower transaction costs are confirmed after controlling for possible sources of endogeneity and further demonstrated in a cross-country growth model calibration. Moreover, the results provide evidence that transaction cost might indeed be central to the study of structural growth mechanisms, suggest the importance of contractual relations and indicate their significant impact on cross-country economic performances over time.
