Institutions affect economic growth

By international comparison, the best institutional conditions for economic growth are to be found in Australia. 15 years ago Australia was still in the eight position in this ranking list. Now it ranks ahead of the United States and the Netherlands. Germany currently comes 11th in this table of 24 countries while it ranked seventh in the past. This ranking is based upon the current institution index for OECD countries compiled by the ifo Institute.

Germany’s slightly lower rating is partly due to a deterioration of basic institutional business conditions. Thus, corruption increased while confidence in policy makers decreased. With regard to the observance of law and order Germany is not considered to be leading any more at an international scale either.

Furthermore, efforts in the field of education lost in strength as compared to other countries. The percentage of public spending on education in proportion to GDP decreased. There are less pupils attending secondary school. Nevertheless, the number of students at universities increased. According to Mr. Wolfgang Ochel, expert at the ifo Institute, Germany’s weakest point by international comparison is the heavily regulated labour market. Also not advantageous are said to be too many early retirements and low women employment.

The institution index by the ifo Institute in Munich studies institutional regulations which significantly influence economic growth. The index is limited to the relatively homogenous group of OECD countries. A detailed presentation of the index results is available for download. GERMAN