Demet Cak

Studying the institution’s development process and its influence on economic results in countries rich in natural resources and whose export is mainly connected with the sale of natural resources can give new ideas for institutional theory. The purpose of this study is to investigate the impact of institutional quality on non-commodity economic growth in Azerbaijan. The study was conducted using the ARDL Bound Test based on data covering the years 1996–2022. The model included growth rates of non-oil GDP and indices of government effectiveness and regulatory quality. The results show that in Azerbaijan, regulatory quality has a positive influence on the growth of non-oil GDP in the long and short-run perspectives. Thus, a 1% increase in regulatory quality leads to a 19.8% increase in the growth rate of non-oil GDP. However, there was no statistically significant relationship between government effectiveness and non-oil GDP. These results confirm the idea of strengthening the work to improve the quality of regulation. It is also necessary to increase the indicator of government effectiveness, the quality of legal institutions, public services, and civil services. The insignificance of institutional quality influence on non-resource tradeable sectors determines the relevance of research on institutions’ impact on increasing the economic complexity of rich-resource countries.