A nonparametric quantile analysis of growth and governance

Conventional wisdom dictates that there is a positive relationship between governance and growth. This article reexamines this empirical relationship using nonparametric quantile methods. We apply these methods on different levels of countries' growth and governance measures as defined in World Governance Indicators provided by the World Bank. We concentrate our analysis on three of the six measures: voice and accountability, political stability, and rule of law that were found to be significantly correlated with economic growth. To illustrate the nonparametric quantile analysis we use growth profile curves as a visual device. We find that the empirical relationship between voice and accountability, political stability, and growth are highly nonlinear at different quantiles. We also find heterogeneity in these effects across indicators, regions, time, and quantiles. These results are a cautionary tale to practitioners using parametric quantile methods.