Institutional factors as determinants of subnational economic growth in Ecuador

Abstract

Ecuador is a developing country with great economicheterogeneity at the regional level. e objective of thestudy is to analyze the importance of institutional quality asdeterminants of subnational per capita income in Ecuador.e positive effect of institutions on economic growth atthe national level has been demonstrated. However, studiesthat analyze institutions as determinants of regional growthfor developing countries are still scarce. e study uses theLatinobarómetro surveys for 2007-2018 to obtain informationon the perception of institutional quality and follows themethodology of the World Governance Indicators of the World Bank to analyze three dimensions of governance: voice andaccountability, effectiveness of the government and rule of law.e empirical analysis is done with a panel data regressionmodel and counterfactual exercises. e results indicate that theimprovement of institutional quality is associated with increasesin the regional income level, aer controlling for factors suchas human capital, infrastructure and capital stock. However, theanalysis reveals that institutions only explain a moderate part ofthe regional differences in per capita income. From a policy pointof view, the analysis suggests the need to consider strengtheninginstitutional quality as a strategy that can complement andenhance the effects of other instruments that seek to promoteregional economic growth.