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University Economic Bulletin

Article

Governance quality and economic globalisation: Interaction effects on sustainable development

Oksana Liashenko, Olga Demianiuk
Retrieved from Vol. 21, No. 1, 2026 Pages 19–29
Received
03.01.2026
Revised
13.04.2026
Accepted
12.05.2026
Published
03.07.2026
Views
6

Abstract

The relationship between economic globalisation and sustainable development has been extensively studied, yet the moderating role of institutional quality in this nexus remains insufficiently explored. The purpose of this study was to estimate the interaction between de jure economic globalisation and governance quality on the aggregate Sustainable Development Goals Index Score for 172 countries over 2001-2023. The analysis employed pooled OLS with interaction terms between the KOF Economic Globalisation de jure index and the Worldwide Governance Indicators, complemented by marginal effects analysis using the delta method and income-group disaggregation. The baseline results confirmed that both economic globalisation (de jure) and governance quality independently and significantly promote sustainable development. The central finding is a significant negative interaction between globalisation and governance (β = -0.047, p = 0.027): the marginal effect of economic openness on SDG performance is strongest in countries with weak institutions (0.185 at WGI = -1.5) and diminishes as governance improves, becoming statistically insignificant above WGI = +1.5. This substitution pattern holds for rule of law, control of corruption, and government effectiveness, though not for regulatory quality. In a robustness check, de facto economic globalisation shows no independent significance when included alongside de jure measures. Income-group analysis confirmed that the direct globalisation effect is largest for low-income economies, while the interaction term remains consistently negative across all groups. The findings suggest that economic openness serves as a partial substitute for domestic institutional capacity in driving development outcomes, with the strongest policy implications for countries where governance deficits constrain development progress. Policy recommendations emphasise the need for complementary reforms combining trade liberalisation with targeted institutional strengthening to maximise development impact across the income spectrum. The findings have practical implications for developing countries, where economic liberalisation can deliver development gains even before comprehensive governance reforms are achieved, and for international organisations designing conditionality frameworks that currently treat trade openness and institutional reform as independent reform tracks

Keywords

trade policy architecture; SDG Index Score; institutional moderation; substitution effect; cross-country panel analysis; KOF index; Worldwide Governance Indicators

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Suggested citation

Liashenko, O., & Demianiuk, O. (2026). Governance quality and economic globalisation: Interaction effects on sustainable development. University Economic Bulletin, 21(1), 19-29. https://doi.org/10.69587/ueb/1.2026.19