impact of institutions on inclusive growth(1996-2022)

This study addresses a fundamental conceptual issue in development economics: the extent to which institutional quality influences inclusive growth, a multidimensional process combining economic expansion with equity and social participation. Recognizing that institutions are not monolithic, we disaggregate institutional quality into multiple dimensions using PCA (principal component analysis) investment-promoting, democratic and regulatory and conflict-preventing, to examine their distinct effects on inclusive growth across a panel of 73 developed and developing countries from 1996 to 2022. Employing the Generalized Method of Moment Approach (SYS-GMM) the models revealed that that investment-promoting, democratic, and regulatory institutions significantly enhance inclusive growth, while conflict-preventing institutions show no statistically significant influence, to assess the robustness of the results, various alternative model specifications were tested through the inclusion of different control variables. The stability of the baseline model remained unaffected, indicating the consistency and reliability of the estimated relationships. These findings carry important policy implications. Policymakers particularly in developing countries should prioritize institutional reforms that strengthen democratic accountability, enhance regulatory frameworks, and promote private investment. However, attention must also be paid to ensuring these institutions do not unintentionally exacerbate inequality Transparent governance, inclusive rule-making processes, and mechanisms for equitable resource allocation are essential to reconcile the dual goals of growth and equity. Finally, institutional development should not be seen as a peripheral concern but as a central pillar in strategies for achieving inclusive and sustainable economic development.