The Impact of Institutional Quality on Economic Growth: Panel Evidence

Saima Nawaz, Nasir Iqbal, Muhammad Arshad Khan

Abstract


The aim of the present study is twofold. First, we develop a
theoretical model which incorporates the role of institutions in
promoting economic growth. The theoretical model predicts that rent
seeking activities decrease as institutional quality improves, and hence
income increases and vice versa. Second, we conduct an empirical
analysis to quantify the impact of institutions on economic growth in
selected Asian economies over the period 1996- 2012 by employing both
static and dynamic panel system Generalised Method of Moments (GMM)
technique with fixed effects. The empirical results reveal that
institutions indeed are important in determining the long run economic
growth in Asian economies. However, the impact of institutions on
economic growth differs across Asian economies and depends on the level
of economic development. The results reveal that institutions are more
effective in developed Asia than developing Asia. This evidence implies
that different countries require different set of institutions to
promote long term economic growth. Keywords: Institutions, Economic
Growth, Panel Evidence, Asia

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DOI: https://doi.org/10.30541/v53i1pp.15-31

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