Testing Causal Relationship between Institutional Quality and Inclusive Growth: Evidence from Panel Causality Tests

Raifu, Isiaka Akande and Afolabi, Joshua Adeyemi and Kumeka, Terver Theophilus (2026): Testing Causal Relationship between Institutional Quality and Inclusive Growth: Evidence from Panel Causality Tests.

Abstract

This study utilizes data from 162 countries to examine the nature and direction of causality between institutional quality and inclusive growth from 1996 to 2020. It employs three distinctive panel causality test methods to ensure the robustness and validity of the findings. The results of one of the causality test methods show mixed findings, while those of the other two methods provide evidence that institutional quality and inclusive growth reinforce each other. Overall, the results are robust to alternative estimation methods. These findings hold significant policy implications, emphasising that governments across all countries should prioritise the development of strong institutions and policies that promote inclusive growth as complementary strategies for sustainable development.

• Item Type: MPRA Paper
• Language: English
• Keywords: Institutional quality, Inclusive growth, Causality tests
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models; E - Macroeconomics and Monetary Economics > E0 - General > E02 - Institutions and the Macroeconomy; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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