Institutional Quality and Macrofinancial Resilience in Asia

John Beirne and Pradeep Panthi
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Pradeep Panthi: Asian Development Bank Institute

No 1336, ADBI Working Papers from Asian Development Bank Institute

Abstract: We examine the effect of institutions on macrofinancial resilience in Asia. Focusing on a panel of 12 Asian economies from the first quarter of 1996 to the fourth quarter of 2020, we find that institutions for economies with high levels of institutional quality support the resilience of real GDP per capita, FDI, and portfolio equity during periods of elevated financial stress. Our results also suggest portfolio rebalancing effects at play in crisis times. For economies with low levels of institutional quality, institutions may help to stabilize portfolio debt during crisis times, although the magnitude of the effects are small. As well as pointing toward resilience thresholds in institutional quality, we provide insights on critical subcomponents of overall institutional quality, notably rule of law, political stability, and regulatory quality. The findings help to inform the direction of policy efforts toward strengthening institutional capacity, and structural reforms for enhancing economic development and resilience to shocks.

Keywords: institutional quality; economic development; international capital flows; Asia (search for similar items in EconPapers)
JEL-codes: F32 F41 F43 O43 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2022-08
New Economics Papers: this item is included in nep-fdg, nep-opm and nep-sea
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Persistent link: https://EconPapers.repec.org/RePEc:ris:adbiwp:1336

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