Fostering Prosperity: Unveiling the Impact of Governance Quality on GDP per Capita in OECD Nations

Abstract

This study aims to investigate the influence of the quality of governance on economic development among 38 OECD countries using a panel data approach. The data was gathered from the World Bank database for the period of 2002-2021 and consists of six governance indicators and two macroeconomic variables. The independent variables are the six governance indicators (WGI): control of corruption (CC), government effectiveness (GE), political stability and absence of violence/terrorism (PS), rule of law (RL), regulatory quality (RQ), and voice and accountability (VA). The dependent variable is the natural logarithm of GDP per capita, and inflation and real interest rates are control variables. The research identifies a direct and significant relationship between GDPPC and GE, PS, RL, RQ, and VA in OECD countries. These findings suggest that the existence of mechanisms for GE, PS, RL, RQ, and VA contribute positively to economic development. Moreover, interest rates and inflation are found to be significant and negatively related to GDPPC.