Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Institutional Quality Factors in Growth The institutional quality factor in economic growth refers to the formal and informal institutions such as government, laws, regulations, policies, and culture that shape the business and societal environment in a country. This factor also includes the quality of economic policies, political and legal systems, press freedom, human rights, social justice, and levels of corruption. Good quality institutions will provide trust and certainty for business people and investors, so as to increase investment, economic growth, and people's prosperity. On the other hand, bad or unstable institutions can hinder economic growth and affect people's welfare. Good quality institutions can also strengthen government capacity to respond to crises, resolve conflicts, and build cooperation between countries. This will help create an enabling environment for sustainable economic growth and international trade. The characteristics of institutional quality factors in economic growth are: o Transparency in decision making o Political and legal stability o Openness and freedom of the press o Protection of human rights o Social justice o Low level of corruption o Availability of adequate infrastructure o Active civil society engagement All of these factors are characteristics that build good quality institutions and can influence sustainable economic growth. The 10th factor affecting economic growth is the quality of institutions. Institutional quality refers to the various institutions and organizations that support economic activity, such as the legal system, effective government, and business transparency. Good quality institutions will enable entrepreneurs to operate more easily and can increase investment and overall economic growth. One indicator of institutional quality that is often used is the Corruption Perception Index published by Transparency International. This index measures perceptions of corruption in the public sector in more than 175 countries and territories around the world. Countries with high scores on this index usually have better quality institutions and can create a more stable and transparent business environment. The characteristics of a good institutional quality include: 1. Effective and transparent government, which can provide legal certainty and protect property rights. 2. A fair and effective legal system that can handle business disputes quickly and efficiently. 3. Availability of accurate and open information, so that entrepreneurs can make the right decisions. 4. Availability of adequate infrastructure, such as transportation and electricity networks, which can facilitate business activities. 5. There are policies that support economic growth, such as stable fiscal and monetary policies. 6. Availability of skilled and trained workforce. 7. Good innovation and technological development capabilities, so as to increase production efficiency and enhance competitiveness. Countries with good quality institutions tend to have faster and more sustainable economic growth. On the other hand, countries with poor institutional quality can experience obstacles in achieving sustainable economic growth, and may even experience setbacks in the long run. Institutional quality factors have several characteristics, namely: 1. Political stability: High political stability will provide certainty for economic actors in investing and developing businesses. This also has an impact on increasing investor confidence in making long-term investments. 2. Economic openness: Economic openness will facilitate trade and investment between countries, as well as increase the flow of foreign capital into the country. 3. Fairness and transparency: Fair and transparent institutions will create a healthy business climate and give business actors confidence to invest and develop. 4. Financial stability: Stability of the financial system will create a conducive business environment and allow businesses to easily access funding. 5. Clear regulations and laws: Clear and understandable regulations and laws that can be understood by all parties will increase legal certainty and provide protection for investors' rights. 6. Bureaucratic efficiency: Low administrative costs and simple procedures will simplify the process of managing business and investment. 7. Economic freedom: Economic freedom will provide greater space for business actors to develop their business. Institutions that promote economic freedom will attract investors to invest. 8. Quality of human resources: Good quality human resources will support industrial development and increase a country's competitiveness in the global market. 9. Protection of intellectual property rights: Protection of intellectual property rights will create a business environment that is conducive to the development of innovation and new technologies. 10. Effective law enforcement: Effective law enforcement will protect businesses and investors from illegal practices such as corruption and fraud. All of these characteristics are interrelated and influence each other in creating a conducive business environment for economic growth. Examples of good quality institutions in supporting economic growth include: o Good legal security, thereby encouraging stable investment and business o Clear and consistent government policies, thereby providing certainty for business actors in making business decisions o An effective and fair tax system, thereby motivating businesses to pay taxes and encouraging the government to generate sufficient revenue for development o Availability of adequate infrastructure, such as roads, ports and airports, to facilitate the distribution of goods and services and support labor mobility and investment o Transparency and accountability in government and business, thereby reducing the risks of corruption and abuse of power, which can hinder economic growth.