Good Governance and Institutional Quality of Public Sector: Theoretical and Empirical Implications

Abstract

Purpose: The main aim of this article is to conduct an econometric analysis and to examine relations between institutional factors pertaining to the quality of governance and the level of GDP per capita in 28 member states of the European Union. Design/Methodology/Approach: The analysis of public governance and good governance concepts is based on critical analysis of the recent literature. Institutional quality of the public sector is analyzed as a part of New Institutional Economics theory. This allows to indicate the institutional dimensions of the quality of public sector. In the empirical part, focus was given to measuring governance and examining relations between institutional factors pertaining to the quality of public governance and the level of GDP per capita in 28 member states of the European Union. To this end, World Bank data were used, and six indicators proposed by this institution were assumed as synthetic measures of governance quality (The Worldwide Governance Indicators-WGI). Findings: The conducted analyses resulted in positively verifying the model of relations between dimensions of governance quality and the pace of economic growth in the EU-28. Based on correlation studies, out of the six analyzed dimensions of governance quality i.e. voice and accountability, political stability, government effectiveness, regulatory quality, rule of law and control of corruption, only political stability transpired not to be correlated to the level of GDP per capita in the studied economies. Practical Implications: The results are especially important for policy makers to understand the importance and the role of good governance. As for society, research results can increase awareness in assessing the quality of governance in each country. Originality/Value: The scientific results fill the gap in the research area of institutional quality of the public sector, and also show the significant relationship between the quality of governance and the economic outcomes (economic growth).