The Role of Institutional Quality in Economic Efficiency in the GCC Countries

Abstract

Advancements in productivity throughout history led to continuous improvements in standards of living; ultimately if current generations had not known more than their ancestors, their standards of living would not have been very different from their ancestors. Respectively, long term economic growth and development are largely dependent on understanding the sources of productivity. Recent literature has identified institutional quality as a significant factor in explaining different productivity levels across countries; therefore, this study provides insight from the Gulf Cooperation Council (GCC) region which has not been previously explored in this context. The main objective of this study is to investigate the association between institutional quality and economic growth for a developing high-income region with a distinct economic structure. The study also determines the total factor productivity (TFP) for Oman using the Solow model. Findings suggest different dimensions of institutional quality have a heterogeneous impact on productivity, while the indicator on contract enforcement and property rights had a positive impact on productivity, the indicator on regulatory quality had a negative effect. Ultimately, these findings provide a guide to policymakers in the GCC on factors that promote growth and those that hinder it.