Economic diversification is one state method used to best utilize national resources and contribute to economic and sustainable development. This paper examines the impact of governance on economic diversification in a selected number of countries (114) using both governance and economic diversification indicators from 1996 to 2023. The intended outcome of this paper is to determine whether the improvement in the quality of governance, measured by the aggregated WGI index, is positively and statistically associated with an increase in the Economic Complexity Index (ECI). A general linear mixed model (GLMM) was constructed to address the research question by evaluating fixed and random effects based on the analysis of repeated measures. However, the study has some limitations such as using an aggregate governance index rather than each indicator by itself and differences among country groups in development and institutional quality level. The findings reveal that economic diversification is linked to the quality of a country’s institutions. The result shows that (coefficient β = 0.283) with 95% CI, which means that on average, the ECI increased by 0.283 for every one-unit increase in the WGI. Moreover, the increase in ECI exceeded 0.1 for every one-unit increase in WGI 95% of the time. Countries with advanced administrative, economic, and institutional structures are better positioned to achieve their desired economic diversification goals. Thus, decision-makers and legislators, especially in countries with low-levels of institutional quality, need to balance ensuring good governance practices with supporting the country’s economic development.
Bassam A. Albassam (Thu,) studied this question.