The hypothesis that the quality of domestic financial and regulatory institutions
determines the effect of liberalisation on growth is not firmly supported by the
data. Our attempts to test this hypothesis by using alternative measures of
institutional strength generally produce results that are either statistically insignificant or contradict the hypothesis. The measures we considered included
the ratio of liquid liabilities to GDP, the index of law and contract enforcement,
and the index of the quality of countries’ accounting and reporting standards. Our
guess is that this is a consequence of the incomplete and imprecise nature of these
measures, and not because institutions do not play a role in this process.