Abstract
This paper investigates the relationship between fiscal policy, institutions, and economic growth and also the role of the institution in Asian economies between 1982 and 2001 through the application of Pedroni’s Cointegration approach. It examined two different channels through which fiscal policy and institutions can affect long-run economic growth in Asian economies. The first channel is when aggregate of government expenditure, aggregate of other fiscal variables, and the institution affect the real per capita Gross Domestic Production (GDP) and the second channel is to determine the role of institutions on the real per capita GDP. The Pedroni Cointegration result established a long-run relationship between fiscal policy, institution, and economic growth. We found a positive and statistically significant impact of aggregate of government expenditure and aggregate of other fiscal variables and institution on real per capita GDP. We also found that there is a role of institutions on the real per capita GDP. JEL Classification: C23, H30, H50, O47
Highlights
In Asian countries, efficiency of the role of institutions is sadly lacking, and there are numerous deficiencies in the functioning of the role of institutions
We concentrated on policy related variables and we introduced government expenditure and fiscal policy, which were included as a proxy for policy related variables
Comparing the results reported in within group and panel group, we found that the panel groups give higher values of estimation coefficient and higher values of significance (1% level) which would be a more accurate representation of the average long-run relationship
Summary
In Asian countries, efficiency of the role of institutions is sadly lacking, and there are numerous deficiencies in the functioning of the role of institutions. There is a certain lack of transparency and accountability in the operation of governmental role of institutions in Asian countries. This type of institutional operation has resulted in large transactional costs, but has created political and economic uncertainty in the region. Legal rules and norms should guarantee that government actions do not undermine but rather support the functioning of economic growth. Rules and norms can enhance the efficiency of fiscal policies and reduce the scope for rent seeking. Government policies and institutions seem to play an important role, policies and institutions that minimise rent seeking and attract investment are correlated with higher growth
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