Long-run effects of human development and public governance on economic welfare: New evidence from transition economies

Abstract

The study attempts to gauge the impact of human development and public governance quality on economic welfare in the long term. The basic proposal of the analysis is that economic growth and/or development cannot be the measurement of the value of economic performance. For this reason, the Economic Prosperity Index, developed by the “Legatum Institute” is the dependent variable of the linear logarithmic model estimated in the paper. Besides, the measurement of economic welfare, (public) governance quality, which neoclassical economics ignored for a certain period, is considered an important input to human development. By taking these two variables into the research center, the study sights the rise in the prosperity (welfare) of 31 transition economies that achieved intense development after the 2000s from 2007 to 2020. Transition economies are selected owing to the rapid development and strong welfare effects they have reached with the millennium. So, the main hypothesis of the research is that transition economies have high human development and good governance that creates economic prosperity. By applying this research question, cross-sectional dependence and slope homogeneity tests, unit root tests, and co-integration tests, the author has conducted the lag length selection before the long-run relationship. Comprehensive analysis findings reveal that both indicators enhance economic prosperity by positively affecting them in the long run and that some of the deviations are improved. © 2022, University of Rijeka. All rights reserved.