Administrative quality, structural reforms, and capital accumulation in developing countries

This paper empirically investigates the importance of administrative quality as one of the key dimensions of governance institutions on structural reforms and capital formation in developing countries between 1985 and 2004. The empirical results show that administrative quality has considerable effects on structural reforms. Furthermore, structural reforms and administrative quality have an effect on both on the aggregate and private investment decisions. Empirical estimation especially reveals the positive effects of administrative quality on capital accumulation both directly and indirectly through enhancing the structural reforms. Our estimations also stress the importance of human capital again both on structural reforms and capital accumulation. Even after controlling for structural reforms, human capital and GNP per capita, macroeconomic indicators like neoclassical accelerator model and real interest rate are still crucial for the capital accumulation decision. However, as compare advances in these macroeconomic indicators, the improvements in administrative quality, structural reforms and human capital yield much higher returns in developing countries.