Killing the Goose that Lays the Golden Egg: a Time-Series Analysis of Institutional Change and Economic Growth in Hong Kong

Nicolaas Groenewold (ngroenew@biz.uwa.edu.au) and Sam Tang (stang@biz.uwa.edu.au)
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Nicolaas Groenewold: Department of Economics, The University of Western Australia
Sam Tang: Department of Economics, The University of Western Australia

No 05-06, Economics Discussion / Working Papers from The University of Western Australia, Department of Economics

Abstract: This paper examines how the rule of law and democratic accountability have affected Hong Kong’s GDP growth rate in the past 20 years. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from ARDL bounds tests show a strong positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to controlling for the effects of investment and the Asian financial crisis in 1997. Our results suggest that the deterioration in democratic accountability following the handover in 1997 has come at the expense of a considerable decline in economic growth, and controverts popular arguments in Hong Kong that improving democratic accountability will harm economic growth.

Keywords: Institutions; growth; democratic accountability; rule of law; Hong Kong (search for similar items in EconPapers)
JEL-codes: O18 O49 P17 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005
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