Institutional Effectiveness and Economic Development: A Machine Learning Approach With Empirical Modelling

ABSTRACT Criminal behaviour and its societal impact remain critical challenges in developing economies, where successful rehabilitation directly influences community well‐being and social progress. India's distinct federal structure provides a compelling research setting, as states exercise considerable autonomy in rehabilitation programs while operating under a unified legal framework. Our methodology combines machine learning with dynamic panel estimation to analyse institutional effectiveness across 29 Indian states (2002–2021), examining 14 dimensions of institutional capacity. This comprehensive analysis explores how economic conditions, institutional mechanisms, and rehabilitation programs interact to determine reform success. The findings reveal that successful rehabilitation emerges not from isolated economic or institutional improvements but through their systematic integration. A pivotal policy shift in 2016 demonstrated how states that implemented comprehensive reforms, strengthening economic foundations and institutional mechanisms, achieved marked improvements in rehabilitation outcomes. This research deepens our understanding of how institutional capacity, resource allocation, and implementation strategies shape reform success in resource‐constrained environments. We identify key determinants of rehabilitation effectiveness by analysing variations across states operating under identical legal frameworks. These insights advance knowledge of how developing economies can design effective rehabilitation programs that harness economic growth and institutional development to enhance societal outcomes.