A NEW WAY TO LINK DEVELOPMENT TO INSTITUTIONS, POLICIES AND GEOGRAPHY

The paper aims to examine the role of institutions relative to economic policy and geography in explaining the diff erential level of development across countries over time. To that end, it att empts to construct a Development Quality Index (DQI) and an Institutional Quality Index (IQI) using multivariate statistical method of principal components. It shows that (i) higher level of IQI along with economic policy and geography factors lead to a positive improvement in the level of DQI; and that (ii) results remain robust for IQI and relatively robust for economic policy and geography even when it is compared across cross-section and panel data estimation for a set of 102 countries over 1980 to 2004. The results strongly indicate that institutions matt er in the context of specifi c economic policy mixes and geography-related factors illustrated by disease burden, etc. It demonstrates that relative infl uence of institutions varies across stages of development.