TITLE:
An Empirical Investigation of the Interactions between Governance and Economic Growth in the Case of Greece
AUTHORS:
George Petrakos, George Sfakianakis, Chara Vavoura, Ioannis Vavouras
KEYWORDS:
Governance, Institutions, Economic Growth, Granger Causality Tests, Greece
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.7,
December
28,
2023
ABSTRACT: The issue of the relationship between the quality of governance and
economic growth lies at the
heart of institutional economics. Several empirical studies at the country
level have shown that there is a high correlation between governance quality and economic growth. In particular, it seems that there is a strong causal relationship between them,
directed mainly from the quality of governance to economic growth (the quality
of governance significantly affects economic growth), but also a weak one in
the opposite direction (economic growth affects the quality of governance). If
it is proved that the quality of governance significantly affects the economic
growth rates, then governance could be considered as a “quasi” factor of
production, as advocated in the framework of institutional economics. However,
there are some empirical studies that
question this relationship between governance and economic growth. The findings, of this study, resulting from an updated version of
Granger causality type tests provide strong evidence of Granger causality from
the quality of governance to economic growth in the case of Greece, during the
period 1995-2021. Moreover, it is confirmed that in the case of Greece, there is also a strong causality from economic
growth to governance. That is, these variables are significantly correlated and
a two-way causal relationship exists. The main implication of our study is that
improving the quality of governance in Greece is a very challenging issue, since
it significantly affects its economic growth
rates. Moreover, economic growth is a critical means of improving the
quality of the country’s governance.