Abstract
In this paper we revisit the institutions–growth nexus in developing countries including the East Asian region. The region has in the past three decades not only achieved spectacular economic growth, but also experienced one of the worst financial crises, i.e. Asian financial crisis (AFC) in 1997–1998. Utilising the neoclassical growth framework augmented with institutional controls and latest estimation technique in panel data analysis, this study finds evidence of positive institutions effect on growth. Nonetheless, the evidence is limited to security of property rights only with no similar evidence on efficient bureaucracy and strong government. This study also uncovers the channel of the institutional effects on economic growth, i.e. via total factors productivity. This study adds to the literature of East Asian growth, which hitherto, to the best of our knowledge, has seen only two studies, namely Rodrik (1997) ‘TFPG controversies, institutions, and economic performance in East Asia’ and Campos and Nugent (1999) ‘Development performance and the institutions of governance: Evidence from East Asia and Latin America’ that document the evidence of institutional importance on economic growth, and these studies are however for the period before the AFC.
Highlights
, Introduction bThe East Asian countries for the past three decades have seen arguably the most spectacu-lar economic development ever achievable in the region
Utilising the neoclassical growth model and controlling for the steady state determinants, we find empirical evidence for the significant institutional qualities that matter for growth
Another interesting finding is the negative coefficient for the Political Rights variable in the East Asian sample, which can be interpreted as autocratic government causing growth in the region
Summary
The East Asian countries for the past three decades have seen arguably the most spectacu-lar economic development ever achievable in the region. Rodrik (1997) and Campos and Nudgent (1999) show that institutional qualities like secure property rights and efficient bureauci racy significantly determine the region’s economic performance. These are arguablny the only two empirical studies documenting the institutional importance on. An institutional variable that reflects the security of prop-erty rights, namely Investment Profile, is found to be consistently significant across all models and samples This finding confirms that of Rodrik (1997). One important assumption in this specification is that institutions are considered to affect growth via the total factor productivity channel and not via investment, sit and measures of both institutions and investment should be statistically significant in growth estimation. Equation (5) presents a heuristic way of testing the institutional effects on growth via its impact on factors’ productivity
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