The Relationship Between Institutional Quality and Human Development: A Panel Causal Analysis of OECD Member Countries
DOI:
https://doi.org/10.63556/tisej.2025.1680Keywords:
Panel Data, Institutional Quality, Human Development, OECD, JKS Causality TestAbstract
Institutional quality and human development are two complementary pillars that ensure the sustainability of economic and social progress. The effectiveness, accountability, and transparency of institutions directly influence economic performance, the investment climate, and social welfare, while human development reflects the human dimension of development through improvements in education, health, and living standards. However, the relationship between these two variables has been examined in only a limited number of studies, and no comprehensive research investigating the causal linkage between them has been identified in the existing literature. This study aims to contribute to the literature by revealing whether a causal relationship exists between these variables between 2000 and 2021. The study sample consists of 35 OECD member countries. The data were obtained from the Human Development Index (HDI) and the Worldwide Governance Indicators (WGI) datasets. To determine the appropriate causality test, homogeneity, cross-sectional dependence, and stationarity analyses were conducted. Based on these preliminary results, the Panel Granger Causality Test developed by Juodis, Karavias, and Sarafidis (2021) was applied. The empirical findings indicate a bidirectional causal relationship between institutional quality and human development. This result suggests that strong institutional structures foster human development, while higher levels of human development promote the formation of inclusive, effective, and just institutions, thereby enhancing institutional quality.
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