Institutional Governance and Sustainable Development: Structural Conditions or Short-Run Levers? Cross-Country Panel Evidence

Abstract

This study examines the relationship between institutional governance and sustainable development using a cross-country panel dataset of 160 countries observed over 2016–2023, yielding 1,161 country-year observations. Sustainable development is measured by a composite Sustainable Development Goals (SDG) score, while institutional governance is proxied by a composite index aggregating four Worldwide Governance Indicators dimensions: Voice and Accountability, Government Effectiveness, Rule of Law, and Regulatory Quality. The empirical specification controls for digital access, environmental intensity, and foreign direct investment. The study estimates pooled ordinary least squares, random-effects, and fixed-effects panel models, using Hausman tests to select the preferred specification. Pooled and random-effects estimates indicate a strong positive association between governance quality and SDG performance. However, Hausman tests reject the random-effects assumption, and in the preferred fixed-effects specification with country and year effects, the governance coefficient becomes statistically insignificant, while digital access and logged carbon emissions remain positively and significantly associated with SDG outcomes. These findings are interpreted as evidence that institutional governance functions primarily as a structural, between-country condition that distinguishes higher-performing from lower-performing economies, rather than as a short-run within-country lever for SDG improvement over the observed period. Digital access, by contrast, exhibits a more dynamic within-country association with sustainable development. The study contributes to the governance–sustainability literature by clarifying the conceptual and empirical distinction between structural conditions and dynamic levers, and by suggesting that policy expectations about governance reforms should be calibrated to longer time horizons. The findings are subject to limitations relating to model specification and the use of a composite SDG score, which are discussed alongside avenues for future research.