INSTITUTIONAL QUALITY AND ECONOMIC PERFORMANCE: PANEL DATA EVIDENCE FROM ASIAN DEVELOPING ECONOMIES

Siong Hook Law

The IUP Journal of Applied Economics, 2006, vol. V, issue 5, 37-51

Abstract: Institutions are the rules of the game in a society by which the members of a society work together, shape the economic behavior of agents and help to explain the economic performance of the country. This paper attempts to empirically test the link between institutional quality and economic growth for 11 Asian developing economies by utilizing a panel cointegration test. Five institutional indicators that represent the overall institutional infrastructure of an economy are employed, namely corruption, rule of law, bureaucracy, repudiation of contracts and risk expropriation. The estimated results support the existence of a long-run equilibrium economic growth equation variables, consists of income per worker, capital formation, human capital, institutional quality and policy variable. The long-run panel equations reveal that institutional quality is statistically significant determinant of economic performance; higher institutional quality is associated with higher growth in income per worker. These findings suggest that besides physical and human capitals, institutional quality is another important factor for explaining differences in growth in Asian developing economies.

Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:icf:icfjae:v:05:y:2006:i:5:p:37-51

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