IMPACT OF INSTITUTIONAL COHERENCE ON MACROECONOMIC EFFICIENCY

Comparative Institutional Advantages theory mainly asserts that the varieties of capitalism, and the institutional coordination in different economic models influences the economic performanceof national economies. Contrary to the abstractions of the Classical and Neo-Classical theories, varieties of capitalism approach incorporates the institutional peculiarities of different economic models. Within this context, heterogeneity of economic models of capitalism becomes the focal point. Both, formal and non-formal modes of economic coordination in national economies build up the institutional structures. According to the prevailing modes of economic coordination embedded, two core division is made between the twoforms of capitalism. They are Liberal Market Economies and Coordinated Market Economies. National economies are arrayed along these two forms of capitalism. The primary objective of this paper is to test the Comparative Institutional Advantages theory by using a sample including Turkey and 15 members of the European Union. To this end, national economies are classified by employing factor analysis, and the impact of institutional features on macroeconomic performance is tested by means of a random effect model. Findings of the empirical analysis support the suggestions of the theory. Introduction An extensive literature on “Varieties of Capitalism” has focused on the institutional variety among the industrialized nations. The main argument of the Varieties of Capitalism literature relies on the comparative institutional advantages hypothesis. The hypothesis suggests that, national economies with distinctive set of institutional structures and economic coordination construe comparative economic advantages. A number of researches within this field demonstrates that there exists a statistically significant association between the degree of economic coordination and macroeconomic performance(Bruno & Sachs, 1985; Calmfors & Driffil, 1986, Kenworthy 2006; . Primary objective of this research is to test the impact of economic coordination and institutional coherence on international competitiveness. A special emphasis is put on Turkey by including to the analysis, in order to develop policy implications. To this end, the paper consists of three parts. First part is sparedto the explanation of the Comparative Institutional Advantages theory, which constitutes the theoretical background of the Varieties of Capitalism literature. Concepts of economic coordination, institutional coherence, and institutional embeddedness are presented on these grounds. Second part focuses on the empirical investigation of the theory, using institutional variables to explain changes in the international competitiveness. Data set and the methodology used are both introduced, and findings are interpreted under this part. The final part presents further policy implications inferred from the empirical investigation, and concluding remarks.