Institutional Quality and Economic Growth: the Rule of Law or Democracy? (Case study: Islamic countries, 2002-2011)

In recent years, growth theories have gone beyond conventional determinants, aiming to include institutional factors. In this context, the main purpose of this paper is to test effective factors on economic growth with special focus on the institutional factors using 53 Islamic countries data from 2002 to 2011. The study used panel data approach and Generalized Method of Moments method. Institutional factors are used in two groups, the rule of law measured by, corruption and regulatory quality and democracy measured by political rights, civil liberties, autocracy and political regime type. The results show that the institutional quality measured by the rule of law has positive and statistically significant effect on the economic growth and democracy and civil liberties have also positive and significant effect on economic growth. These suggest that to achieve economic growth in light of institutional reforms both the rule of law and democracy should be considered simultaneously.