Spatial Spillover of Governance and Institutional Quality: A Spatial Econometric Approach

The failure of Washington consensus increased the attention of researchers and policymakers on improving institutional quality of countries. Different empirical studies have been done to find determinants of institutional quality especially at global scales. This paper represents a complementary approach on previous efforts by developing spatial spillover of governance as a determinant of institutional quality. In fact, this paper attempts to answer to the question: how much can the institutional quality of neighboring countries explain good governance of a country and what is the share of this variable among the other determinants? To answer these questions, spatial econometric approach is adopted. Paper reveals that spatial governance spillover can explain about 20% of governance quality of countries and consequently is one of the serous determinants of institutional quality when the concept of contiguity gets wider than land borders.