Abstract

Research on long term economic development has consolidated around the central role of economic and political institutions. Within these institutional spaces, structural policies represent a subset of incentive structures with their own effects on economic behavior. To capture the separate effects of both institutional environments and structural policies, we construct an Institutional Index (II) and a Structural Policy Index (SPI) to evaluate their effects on income levels and short term growth rates for non-high-income states. This paper finds that both the II and SPI predict variations in income levels between non-high-income states, with the II producing a larger and more statistically significant estimate. Importantly, this paper finds evidence of an interaction effect between institutions and the business regulatory environment. We conclude with case studies of Botswana, Zambia, Lesotho, and Uganda, to illustrate the differential economic effects of the II and SPI in four southern African states.