Governance and economic growth in Asia

Abstract

The study utilizes a frequency domain approach to investigate whether a Granger causality running from governance to economic growth exists in twelve Asian countries, classified as “Free”, “Partly Free”, and “Not Free” countries, over the period of 1996–2014. The empirical results show that with the exception of South Korea, “Free” countries exhibited no significant causality running from most dimensions of governance to economic growth. For “Partly Free” countries, with the exception of Indonesia and Thailand, rule of law Granger causes economic growth. As for “Not Free” countries, there exists a significant causality running from most dimensions of governance, especially for government effectiveness and rule of law, to economic growth. Generally speaking, various dimensions of governance lead to more significant economic growth in “Not Free” countries when compared to “Free” and “Partly Free” countries. The findings of this study indicate that policy makers in “Not Free” countries should opt to pay more attention on the quality of governance, specifically around government effectiveness and rule of law, in order to promote the future growth rate of real GDP per capita.