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The literature has arrived at a consensus regarding the positive effects of institutions on growth. Nevertheless, many economists argue that a unified analytical framework of institutions-growth studies is still missing and more research needs to be done to fully operationalise the institutional effects in the empirical growth analysis. This paper critically reviews the literature on institutions-economic growth nexus and carefully outlines the important dimensions of empirical heterogeneity the growing number of institutional studies have given rise to. Via a careful assessment and thorough evaluation of selected institutions-growth studies, the dimensions of heterogeneity are identified, namely modelling the institutions-growth link, measures of institutions, channel and size of effects of institutions on growth, reverse causality issue, estimation techniques and sources of institutional data. Arguably, a critical review of a similar stature is rarely done, and the findings of this review are expected to better-inform future empirical works in this field towards strengthening the empirical evidence to support the proposition that “institutions matter to growth.”
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