Quality of institutions and standard of living: a panel cointegration analysis

Does the quality of its institutions affect the average standard of living in a country? We aim to answer this question by conducting a panel cointegration analysis on a sample of 162 countries and 21 years, from 1996 to 2016. In the long run, the estimates show a mutual (Granger) causal effect between all six constitutive elements of institutional quality considered and GDP per capita, our proxy of a country’s standard of living. In the short run, however, GDP per capita is only influenced by voice and accountability, and regulatory quality.