The paper aims to ascertain the effects of governance on investment and vice versa among a sample set of developing countries. In an increasingly interdependent economic system, regions with good governance are considered to be areas of higher investment as a result of further integration and collaborative action among member states. Since its foundation in 1992, Black Sea Economic Cooperation (BSEC) countries have gone through a transition process and to a large extent these were about institutional transformation. Good governance and institutions are an assurance to guarantee property rights and minimize transaction costs, thus creating an environment conducive to investment and growth. To that end, our second aim is to find out the impact that BSEC has given to its member countries regarding convergence of governance institutions. The study is the first attempt in the literature to investigate how regionalization can provide institutional convergence besides economic convergence in the BSEC region.
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