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# **7.4 Economic and Institutional Regime**

Lastly, we turn to examine the effects of the economic and institutional regime, in addition to the rest of the knowledge variables, on economic growth. Tables 4 and 4a present the results of regressions where we included as additional regressors the SachsWarner (1995) index of economic openness and the institutional quality index from Bosworth and Collins (2003). As in the previous sections, Table 4 presents the results when the non-per-worker specification (Equation 7) is estimated and Table 4a presents the results when the per-worker specification (Equation 8) is estimated.

The economic openness and institutional quality variables are included as additional regressors in Regs 4.2 through 4.11 and Regs 4a.2 through 4a.11. For convenient comparison, Regs 4.1 and 4a.1 present the results of regressions where the economic and institutional variables were not included, which we have already examined in detail in the preceding sections. Regs 4.2 through 4.6 and Regs 4a.2 through 4a.6 employ the human capital stock measures based on the population aged 15 years or older with various innovation and ICT indicators. Regs 4.7 through 4.11and Regs 4a.7 through 4a.11 re-estimates the regressions with the human capital based on average educational attainment of persons 25 years and older.

Firstly, we note that all of our ‘new’ regressions exhibit R-squared values that are around 20 percentage points higher than our control regressions. This does strongly suggest that economic and openness and institutional quality do play large role in determining rates of economic growth. Next, we notice that the institutions variable consistently produces estimated coefficients that are positive, which is theoretically consistent, and highly statistically significant. Similarly, the economic openness variable consistently returns an estimated coefficient that is positive and statistically significant.

The next striking observation is that upon the inclusion of the economic openness and institutional quality variables as regressors, many of knowledge indicators, which had produce highly statistically significant estimated coefficients before, are now statistically not significant. More specifically, we see that our human capital stock variables, while maintaining their theoretically expected signs, are generally not statistically significant. The situation is similar with our ICT variables, with the exception that many of the ICT coefficients actually return coefficients with negative signs. This result, where controlling for economic openness and institutional quality eliminates prior present independent roles of other regressors of interest, is consistent with other studies that have included institutional quality in cross-country growth regressions<sup>48</sup> . However, there are a few innovation variables that have coefficients that managed to maintain their statistical significance. In particular, the innovation variables, 48 For example, Bosworth and Collins (2003) found that with the inclusion of an institution quality variable, their human capital stock / education variables became statistically insignificant.