This paper adopts the Augmented Solow model as the core empirical framework. It aims to examine the influence of institutions as moderators in the relationship between technological efficiency and labor productivity. The existing literature has not sufficiently integrated technological efficiency within the Augmented Solow framework, and they also tend to examine these dimensions in isolation rather than capturing their interactive (moderating) effects on labor productivity. To achieve the objective of this study, countries were classified into High, Upper-Middle and Lower-Middle income countries. The model examines the vast gap between the countries and finds that, according to their income, the gap will widen due to destructive-applicable institutions. This study applies a panel analysis using the data for 175 countries during the period 1990–2019. The results provide recommendations for addressing these challenges to enhance output and promote long-term economic growth. The empirical results show that the quality of the institutional context determines its impact. In particular, the interaction term shows that while efficiency benefits are dampened under worse institutional settings, they are greatly magnified in contexts with above-average institutional quality. As a result, this study emphasizes that policies that only aim to increase productivity or encourage the adoption of new technologies are inadequate without a robust and well-functioning institutional environment.
Omnia Osama ElHusseiny (Tue,) studied this question.