Role of institutional quality in economic development: A case study of Asian countries
-
DOIhttp://dx.doi.org/10.21511/ppm.19(2).2021.29
-
Article InfoVolume 19 2021, Issue #2, pp. 357-369
- Cited by
- 1288 Views
-
1825 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
The paper investigates the impact of institutional quality on economic growth by taking 48 countries in Asia between 2005 and 2018. By using the quantile regression methods with panel data, institutional quality is found to be a key factor of economic development. However, in the lower-income Asian countries, the institution with better quality appears to promote the growth more effectively than in the higher-income ones. Moreover, the paper also finds out a nonlinear relationship between institutions and economic growth. The results show that there is an institutional threshold for economic growth to reach its highest level. If the institution indicator exceeds the threshold, it causes the reverse effect on the growth. Moreover, the economic growth of Asian countries is also affected by inflation (INF), labor force (LABO), trade openness (OPEN), and infrastructure (TELE). From that, the study suggests some policy implications for Asian countries and Vietnam, in particular, in order to improve institutions contributing to economic growth.
- Keywords
-
JEL Classification (Paper profile tab)B22, E02, O47
-
References43
-
Tables6
-
Figures2
-
- Figure 1. Regression coefficients of the institutional variables based on the FGLS regression and quantile regression methods
- Figure 2. Institutional quality of Vietnam compared to the average of Asian countries presented as INS in the period 2005–2018
-
- Table 1. Synthesis of variables in the model
- Table 2. Synthesis of results on the impact of institutions on economic growth in Asian countries
- Table 3. Results of FGLS method for models (6), (7), (8), (9) and (10)
- Table 4. Institutional thresholds affecting economic growth in Asia
- Table 5. Comparison of economic growth between Vietnam and Asian countries
- Table 6. CPIA index of Vietnam during the period 2005–2018
-
- Acemoglu, D., Naidu, S., Restrepo, P., & Robinson, J. A. (2014). Democracy does cause growth. Journal of Political Economy, 127(1).
- Acemoglu, D., Naidu, S., Restrepo, P., & Robinson, J. A. (2015). Democracy, redistribution, and inequality. Handbook of income distribution, 2, 1885-1966.
- Aisen, A., & Veiga, F. J. (2013). How does political instability affect economic growth? (Working Papers No. 568). Central Bank of Chile.
- Alani, J. (2012). Effects of technological progress and productivity on economic growth in Uganda. Procedia Economics and Finance, 1, 14-23.
- Alexiou, C., Tsaliki, P., & Osman, H. R. (2014). Institutional quality and economic growth: Empirical evidence from the Sudanese economy. Economic Annals, 59(203), 119-137.
- Barro, R. (1996). Determinants of economic growth: a cross-country empirical study (Working Papers 5698). National Bureau of Economic Research.
- Beck, N., & Katz, J. N. (1995). What to do (and not to do) with time-series cross-section data. American political science review,89(3), 634-647.
- Bernabe, M. D. (2017). Redefining inclusive growth in Asia (Briefing paper). Oxfam International.
- Chong, C. Y. (2020). Nonlinear impact of institutional quality on economic performance within the comprehensive and progressive agreement for trans-pacific partnership. In Understanding Digital Industry (1st ed.). Routledge.
- Di Vita, G. (2017). Institutional quality and the growth rates of the Italian regions: The costs of regulatory complexity. Papers in Regional Science, 97(4), 1057-1081.
- Dias, J., & Tebaldi, E. (2012). Institutions, human capital, and growth: The institutional mechanism. Structural Change and Economic Dynamics, 23(3), 300-312.
- Dung, B. D., & Phuong, P. T. (2009). Economic growth and social equity. VNU Journal of Science: Economics and Business, 25(2). (In Vietnamese).
- Erum, N., Hussain, S., & Yousaf, A. (2016). Foreign direct investment and economic growth in SAARC countries. The Journal of Asian Finance, Economics, and Business, 3(4), 57-66.
- Gani, A. (2011). Governance and growth in developing countries. Journal of Economic issues, 45(1), 19-40.
- Ha, L.T.N. (2016). The Relationship of Growth and Transparency in the Public Sector. VNU Journal Of Science: Economics And Business, 32(4). (In Vietnamese).
- Hodgson, G. M. (2004). The evolution of institutional economics.Routledge.
- Ismihan, M., & Metin-Ozcan, K. (2009). Productivity and growth in an unstable emerging market economy: The case of Turkey, 1960–2004. Emerging Markets Finance and Trade, 45(5), 4-18.
- Jaunky, V. C. (2013). Democracy and economic growth in Sub-Saharan Africa: a panel data approach. Empirical Economics, 45, 987-1008.
- Kasper, W., & Streit, M. E. (1999). Institutional economics. Edward Elgar Publishing.
- Koenker, R., & Bassett, G. (1978). Regression quantiles. Econometrica, 46(1), 33-50.
- Law, S. H., Lim, T. C., & Ismail, N. W. (2013). Institutions and economic development: A Granger causality analysis of panel data evidence. Economic Systems, 37(4), 610-624.
- Loko, B., & Diouf, M. A. (2009). Revisiting the determinants of productivity growth: What’s new? (Working Paper). International Monetary Fund.
- Marakbi, R., & Turcu, C. (2016). Corruption, institutional quality and growth: A panel smooth transition regression approach.
- Miller, S. M., & Upadhyay, M. P. (2002). Total factor productivity and the convergence hypothesis. Journal of Macroeconomics, 24(2), 267-286.
- Nakabashi, L., Pereira, A. E. G., & Sachsida, A. (2013). Institutions and growth: a developing country case study. Journal of Economic Studies, 40(5), 614-634.
- Ndjokou, I., & Tsopmo, P. C. (2017). The effects on economic growth of natural resources in Sub-Saharan Africa: Does the quality of institutions matters? Economics Bulletin, 37(1), 248-263.
- Ngo, H. L. (2020). Improve financial institutions, promote economic development and strengthen international integration. Tap Chi Tai chinh. (In Vietnamese).
- Ngo, M. N., & Nguyen, L. D. (2020). Economic growth, total factor productivity, and institution quality in low-middle income countries in Asia. The Journal of Asian Finance, Economics, and Business, 7(7), 251-260.
- Nguyen, C. H., & Nguyen, T. T. (2014). Improving institutions and renew the mindset of socio-economic development in Vietnam. Journal of Development & Integration, 17, 11-16. (In Vietnamese).
- Nguyen, H. N. (2013). Institutional and economic institutional reform in Vietnam. Journal of Banking, 4, 7-13. (In Vietnamese).
- Nguyen, V. P. (2013). Institutions and economic growth: Theory and practice. Journal of Economy & Development, 191, 23-29. (In Vietnamese).
- North, D. (2000). A Revolution in Economics (Chapter 4). In C. Menard (Ed.), Institutions, Contracts and Organizations. Cheltenham, UK: Edward Elgar Publishing.
- North, D. C. (1990). Institutions, Institutional Change, and Economic performance. New York: Cambridge University Press.
- Ouoba, Y., & Sawadogo, R. (2019). Natural resources effect on economic growth: The role of institutional quality. Journal of Policy Modeling.
- Pham, D. L. (2017). Institution, aggregate factor productivity and economic growth: A study of developing countries (Thesis). HCMC University of Economics. (In Vietnamese).
- Rigobon, R., & Rodrik, D. (2005). Rule of law, democracy, openness, and income: Estimating the interrelationships1. Economics of transition, 13(3), 533-564.
- Rodrik, D., Subramanian, A., & Trebbi, F. (2004). Institutions rule: the primacy of institutions over geography and integration in economic development. Journal of economic growth, 9(2), 131-165.
- Salman, M., Long, X., Dauda, L., & Mensah, C. N. (2019). The impact of institutional quality on economic growth and carbon emissions: Evidence from Indonesia, South Korea and Thailand. Journal of Cleaner Production, 241, 118331.
- Siddiqui, D. A., & Ahmed, Q. M. (2013). The effect of institutions on economic growth: A global analysis based on GMM dynamic panel estimation. Structural Change and Economic Dynamics, 24, 18-33.
- Slesman, L., Baharumshah, A. Z., & Ra’ees, W. (2015). Institutional infrastructure and economic growth in member countries of the Organization of Islamic Cooperation (OIC). Economic Modelling, 51, 214-226.
- Venard, B. (2013). Institutions, corruption and sustainable development. Economics Bulletin, 33(4), 2545-2562.
- Vianna, A. C., & Mollick, A. V. (2018). Institutions: Key variable for economic development in Latin America. Journal of Economics and Business, 96, 42-58.
- World Bank. World Bank Open Data.