The existing literature primarily indicates a positive association between institutions and economic growth. However, institutions do not exert a similar impact on economic growth across different sets of countries. In this study, we analyzed the impact of institutional quality on economic growth using a sample of 15 members from G7 and D8 Countries in the period 1984-2017 using a Panel Smooth Transition Regression framework. González, Teräsvirta, and Van Dijk (2005) indicated that there is a non-linear relation between institutional quality and growth modulated by institutional development. On the other hand, we found that institutional quality can positively (or negatively) affect growth in case of a low (high) level of institutional development. This result suggests therefore a reconciliation of the theories asserting that institutional quality can “sand the wheels” or “grease the wheels” of economic growth. The main result of this study confirms the negative impact of institutional quality on economic growth in this block of countries.
JEL Classification: K14. K15, K18.
