Role of Institutions and Economic Growth in Asian Countries

Abstract

For the past two decades, researchers have been focusing on the most important question related to economic growth, that is, what actually determines the growth of nations. In many empirical studies, geography, human capital, physical capital, trade integration, population and information technology have been found to be the major contributors to the development of economies^[1]. But recently empirical research has started focusing on the role played by ‘institutions’. Therefore, development is no longer viewed as an outcome of capital accumulation but as a process of organizational change. However in growth literature this finding can be something new but economists acknowledge the supremacy of such organizations i.e. economies can be prosperous if they are free from government interventions.Thus role of institutions has been an important point of focus for economists for the past two decades. This study aims to examine the relationship among these institutions and economic growth in Asian countries. Study covers the time period from 1995-2010. Fixed effect model has been applied.  Results show that financial and legal institutions inter alia are more effective in increasing the economic growth as compared to other formal and informal institutions. We conclude from our findings that enforcement of sound financial and legal system can help to increase economic development.

Key Words: Institutions, Financial Markets, Legal system, Economic Development, Formal Institutions, Informal Institutions, Legal institutions, Financial Institutions, Property Rights

[1] Temple (1999) for references to the relevant empirical growth studies.