The Impact of Uncertainty and Institutional Quality on Economic Growth: Evidence from Cross-Country Analysis

Abstract

This study examines how uncertainty and institutional quality affect economic growth in different countries. Recent global shocks, policy instability and governance challenges have exacerbated the need to understand how uncertainty affects long-term economic performance. At the same time, institutional quality reflected in governance indicators such as the rule of law, regulatory quality and corruption control that is recognized as a key driver of sustainable development. This analysis uses panel data techniques that take into account cross-sectional dependence, heterogeneity and long-term dynamics, examining both the direct effects of uncertainty and the moderating role of strong institutions. Empirical results show that high uncertainty significantly reduces growth by discouraging investment, reducing productivity and weakening economic stability. In contrast, improvements in institutional quality promote sustainable growth while reducing the negative effects of uncertainty. These findings underscore the importance of creating strong, transparent and effective institutions to withstand periods of economic instability. This study provides practical insights for policymakers seeking to increase economic resilience and promote sustainable development through reforms and governance policies that reduce uncertainty.