Institutions and economic performance: A meta-regression analysis Adnan Efendic a, ⁎, Geoff Pugh b , Nick Adnett b a University of Sarajevo, School of Economics and Business, 71000 Sarajevo, Trg Oslobodjenja A.I. 1, Bosnia and Herzegovina b Staffordshire University Business School, Stoke-on-Trent, Leek Road, ST4 2DF, UK article info abstract Article history: Received 17 December 2009 Received in revised form 13 December 2010 Accepted 15 December 2010 Available online 23 December 2010 This paper applies meta-regression analysis to the empirical literature that investigates the effect of institutions on economic performance. Although studies with growth-theoretic foundations do not yield robust evidence for an authentic empirical effect, we find more robust evidence of positive and large institutional effects on output levels. The partial correlations between institutional and economic performance variables are also influenced by model specification choices and, in particular, (non)treatment of the potential endogeneity of institutions. A corollary of such pronounced heterogeneities is that we cannot report a representative estimated effect size, although the evidence overwhelmingly suggests a positive influence of institutional quality on economic outcomes. © 2010 Elsevier B.V. All rights reserved. JEL classifications: E02 O43 Keywords: Institutions Economic performance Meta-regression analysis 1. Introduction Jones and Romer (2009) argue that institutions are now at the centre of mainstream economic theory, while Economides and Egger (2009) regard institutions as a primary determinant of economic performance. In particular, the proposition that institutions affect economic performance (North, 1990) is no longer controversial. This consensus is supported by the good number of econometric studies that have investigated the link between institutions and economic performance. Yet many economists argue that institutional analysis is still in its development stage (Brousseau and Glachant, 2008; Chang, 2006; Furubotn and Richter, 2005; Kirman, 2007), is still “well short of a unified analytic framework” (Potts, 2007, p. 34) and that more research needs to be done before the institutional perspective can be fully operationalized (Pelikan, 2003; Rodrik, 2004a). The contribution of this paper is to report a meta-regression analysis (MRA) of the empirical literature on institutional quality and economic performance; and, hence, to suggest ways in which this evidence base may be criticised and developed to better inform institutional perspectives on economic performance. Conventional narrative review establishes that this literature typically reports statistically significant and positive effects of institutional improvement on economic performance. MRA moves beyond such qualitative judgements. MRA is “the regression analysis of regression analysis” (Stanley and Jarrell, 1989). In this paper, we apply statistical tools developed by MRA practitioners to test for and measure the extent of selection or publication bias in the empirical institutional literature (Stanley, 2005; 2008); to identify and quantify the authentic effects of institutions net of publication bias; and to explain and quantify the heterogeneity of reported institutional effects. Accordingly, a particular contribution of this paper is to raise awareness about the consequences of specification choices, especially with respect to modelling the potential endogeneity of institutions. The econometric investigation of institutions and economic performance is a relatively new area and MRA is a relatively new econometric tool. The paper most closely related to our work is Doucouliagos (2005), which investigates the existence of European Journal of Political Economy 27 (2011) 586–599 ⁎ Corresponding author. Tel.: + 387 61 162 249; fax: + 387 33 275 900. E-mail addresses: A.Efendic@staffs.ac.uk, Adnan.Efendic@efsa.unsa.ba (A. Efendic). 0176-2680/$ – see front matter © 2010 Elsevier B.V. All rights reserved. doi:10.1016/j.ejpoleco.2010.12.003 Contents lists available at ScienceDirect European Journal of Political Economy journal homepage: www.elsevier.com/locate/ejpe