The Investigation of Good Governance Effects on Economic Vulnerability: An Inter-country Approach

In recent years, paying attention to vulnerability and its factors are among the most important issues among Iranian economists and researchers due to sanctions and the lack of readiness of the Iranian economy to response them. The degree of economic vulnerability can be greatly influenced by the structural characteristics of the economy, economic policymaking, and the governance in the economy. This research aims to answer the question of whether good governance can reduce the vulnerability of the economy. In this regard, two inter-country regression models are estimated over the period 2009-2011. The first regression includes 183 countries, whose vulnerability indexes have been calculated by Briguglio (2014). The second regression includes Iran and 25 countries with a population of over 50 million people. The results show that good governance has negative and significant effect on economic vulnerability. Therefore, a country with better governance can reduce vulnerability by relying on efficient mechanisms, processes and institutions.