Does the Quality of Government improve Labour Productivity? New Evidence for European Regions

This paper examines the relationship between the quality of regional government and labour productivity levels in Europe. The study analyses data from 119 European regions between 2010 and 2021, using a fixed effects model to demonstrate that good governance can create a socio-economic environment that is conducive to improving regional labour productivity. When the three pillars of government quality are analysed separately, the main effect is found to be attributable to two of them: impartiality and lack of corruption. The quality of public services is found to be insignificant. Additionally, the empirical model provides evidence of the significant impact of other socio-economic covariates, such as expenditure in R&D, tertiary education attainment, household digitalisation, and labour market structure. Finally, it is demonstrated that the geographical location plays a primary role in the magnitude of these effects.