The Effect of Development on Institutions: The Case of Islamic Countries of D8 Group

Since 1990s researchers have demonstrated increasing interest in studying the association between institutions on one hand, and other issues including economic growth and development, investment, inflation and inequality on the other hand. This mainly lies in the fact that institutions play substantial role in reducing the costs of exchange, insecurity and risks. This evidently echoes the importance of studying the determinants of institutions, which has not received sufficient attention in the existing literature. Development accounts for a key determinant of institutions. The present study examines the effect of development on institutions on the basis of the governance index. The examination focuses on the Islamic countries of D8 during 1996-2014 and employs the auto-regressive method. The results of this study support the statistically significant and positive effects of development and human capital on institutions. On the contrary, institutions are negatively affected by abundant natural resources.