PRODUCTIVITY AND GROWTH: THE ROLE OF GOVERNANCE IN INDIA AND OTHER BRICS ECONOMIES

Abstract

Beyond innovations, capital availability and other growth drivers, are there other factors that can contribute to productivity? This paper focuses on investigating governance as a driver of economic growth via productivity. The aim is to ascertain that governance can serve as an improvement to the relationship between productivity and economic growth. VAR multivariate model by applying the Toda-Yamamoto model which is an extension of VAR. This empirical finding for BRICS points out the improvement that can be achieved in the growth of their economy by improving the quality of governance among member nations. There is a causal relationship between productivity and governance which can support the bi-directional causal relationship between productivity and growth in the economy. The result further showed that the contribution of productivity to growth at the early stage is higher than that of governance. However, the productivity contribution to growth declined while that of governance to economic growth was trending upward. The key takeaway from the Toda-Yamamoto model for the productivity-governance-economic growth link is that governance is an important factor that can improve productivity if the quality of the institution preserves the confidence of the factor of production. Thus, an economy that is interested in improving productivity beyond the threshold that has been previously identified in theories can focus on improving the quality of governance.