Abstract
The roles of institutional quality on economic growth are still heavily debated in the literature. This paper investigates the impacts of institutional quality on economic growth for 29 emerging economies over the 2002-2015 period by employing System Generalized Method of Moments (SGMM) estimators. We find the significant positive impacts of institutional quality on economic growth. The institutional quality impedes the positive effects of foreign direct investments (FDIs) and trade openness on economic growth. However, institutional quality improvement can mitigate the competition brought by trade openness in the areas FDIs operate to optimize their spill-over effect.
Highlights
An important issue for both academic and pratical studies is the extent to which determinants of economic growth play in different countries [1], the economic grow this essential to maintain and improve the international competiveness of a country [2] [3]
The study finds that better institutional quality can mitigate the competition brought by trade openness in the areas that foreign direct investments (FDIs) operate to optimize their spillover effect
The negative effect of trade in association with FDI is lessened in the countries with high institutional quality. This is reflected in the significant positive coefficient of the nexus of institutional quality, trade openness and FDI. This novel result indicates that institutional quality improvement can mitigate the competition brought by trade openness in the areas that FDIs operate to optimize their spillover effect
Summary
An important issue for both academic and pratical studies is the extent to which determinants of economic growth play in different countries [1], the economic grow this essential to maintain and improve the international competiveness of a country [2] [3]. Emerging economies are less comparative and trade advantages may take time to materialize [16] This raises the concern on the impact of institutional quality improvement on the economic growth effect of trade openness in emerging economies. This study is the first attempt examining the role of institutional quality in moderating the impacts of the nexus of trade openness and FDI on economic growth in emerging economies. This is imperative as emerging economies are increasingly opening to trade and foreign investment which may mutually affect economic growth. The study provides new arguments on the impact of institutional quality on the economic growth effect of trade openness in the short run for emerging economies.
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