Technical progress, often measured through changes in total factor productivity (TFP), has been extensively examined within the economic literature. Researchers have proposed that institutional quality is a key driver of TFP. Specifically, while institutions influence business efficiency, financial sector dynamics, and human capital development, they are also critical to providing the conditions that incentivize cooperation and innovation, in turn, augmenting TFP. This study undertakes an examination of the nexus between institutional quality (IQ) and TFP growth across a sample of 20 countries situated in the Americas using annual data from 2002 to 2019. The findings of this study substantiate the premise that enhanced IQ engenders an upswing in the rate of TFP growth, even after controlling for key production inputs, trade integration and macroeconomic conditions. In particular, institutions that promote citizen voice and authority accountability, and nurture a positive perception of the public sector's efficacy, reflecting trust in the state’s competency, are found to be key drivers of productivity growth within the American region.
JEL codes: O47; OO43; E0.