The Moscow City News Agency has published the findings of a study by the Gaidar Institute indicating that the development of economic institutions in Russia has the potential to significantly accelerate economic growth.
In recent decades, economists have increasingly focused not only on the usual drivers of growth — investment, trade, and demographics — but also on the quality of the institutional environment (institutions). This refers to the rules by which the economy operates: protection of property rights, the effectiveness of the courts, the effectiveness of public administration, the quality of business regulation, and the development of the financial system. It is these factors that largely determine how predictable and stable the economic environment is.
Researchers at the Gaidar Institute note that the role of institutions is often assessed in different ways. Some consider them the main driver of growth, while others view them as a secondary factor compared to external conditions or resources. To understand this, the researchers analyzed data from various countAt the same time, the researchers identified an important detail: the development of the financial sector does not in itself guarantee economic success. In some cases, increased lending is even associated with lower growth rates, which is explained by the risks of economic overheating and financial crises. This means that it is not the size of the financial system that matters, but the quality of its regulation.ries and compared which specific institutional characteristics are actually linked to accelerated economic development.
The research methodology is based on econometric analysis: the authors compared indicators of institutional quality with economic growth rates across different countries and at different stages of development. Additionally, scenarios were modeled in which the level of institutions is hypothetically raised — this allowed for an assessment of the potential contribution of institutional reforms to growth.
The results showed that the influence of institutions does indeed exist, but it is uneven. The strongest link to economic growth is observed in factors such as the quality of market regulation, protection of property rights, stability of economic policy, and the development of financial regulations. When these factors improve, countries on average demonstrate higher growth rates in subsequent periods.
At the same time, the researchers identified an important detail: the development of the financial sector does not in itself guarantee economic success. In some cases, increased lending is even associated with lower growth rates, which is explained by the risks of economic overheating and financial crises. This means that it is not the size of the financial system that matters, but the quality of its regulation.
The researchers paid particular attention to differences between countries. For low-income economies, basic institutions — property rights and effective law enforcement — play a decisive role. In middle-income countries, investment and trade begin to take on greater importance, while the role of institutions becomes less clear-cut. In developed economies, the quality of regulation, financial rules, and support for innovation come to the fore.
For Russia, the modeling showed potential for accelerating growth through improvements in the institutional environment. However, the magnitude of this effect depends on external conditions and the specific nature of the changes. Unlike countries that have already reached a high level of institutional development, where the additional effect is limited, other countries have significantly greater potential for growth through institutional improvements.
“Improving the institutional environment is not a one-size-fits-all solution, but rather a set of measures that work differently under different conditions. It is important to take into account the stage of economic development and its structure in order to select priority areas for change,” notes one of the study’s authors, Dmitry Evdokimov, Researcher at the Gaidar Institute’s Quantitative Analysis of Economic Effects Department.
In conclusion, the researchers emphasize that improving institutions cannot fully protect the economy from external shocks, but it is precisely this that largely determines the sustainability of growth and the speed of recovery after crises. In practical terms, this means that to accelerate Russia’s development, it is important to consistently improve the business environment, enhance the quality of regulation, and strengthen confidence in the economic system.