On comprehensive wealth, institutional quality and sustainable development-quantifying the effect of institutional quality on sustainability

This paper shows a significant and causal positive relationship between good institutions and sustainability. While sustainability is measured with the adjusted net saving (ANS) indicator, institutional quality is measured using an average of six dimensions of governance. An instrumental variable is used to account for endogeneity. Rearranging the set-up and running the regression on the net national savings rate lead to results displaying a much smaller and weaker effect. This finding suggests that compared to the saving of physical capital, the saving of non-physical capital is influenced more strongly by institutional quality.

Research highlights
► A significant positive impact of good institutions on sustainability is shown.
► An instrumental variable approach is used to account for endogeneity.
► Sustainable development is measured by the adjusted net saving (ANS) indicator.
► A smaller and weaker effect on the net national savings rate is found.
► Saving of non-physical capital is influenced strongly by institutional quality.