Institutions of Governance:

This level of the institutional hierarchy encompasses the governance arrangements through which economic relationships will be governed within the attributes of the basic institutional environment. The other institutions included at this level are: (i) competitive markets through which individuals trade goods including services and labour; (ii) contractual/transactional relations including the vertical and horizontal structure of business firms and the boundaries between transactions mediated internally and those mediated through markets; and (iii) corporate governance, and financial institutions that support private investment and credit. The choice of governance arrangements is heavily influenced by the basic institutional environment as well as by a country's basic economic conditions like natural resource endowments. Changes in governance arrangements usually take place more quickly than changes in the basic institutional environment with a time frame ranging from 1 to 10 years.