Essays on Institutions and Economic Growth in Developing Countries
thesisposted on 01.06.2012, 12:56 by Mahyudin Bin Ahmad
This thesis focuses on the institutions-growth nexus in the developing countries from East Asia, Africa and Latin America. It comprises of three distinct chapters with specific interests. The first chapter investigates unique economic development of the East Asian countries in the past two decades which is, to my knowledge, still lacking empirical study particularly for the period after the Asian financial crisis. The second chapter explains the growth-effect of social capital (informal institutions) and the channel of the effect using panel data analysis which hitherto has been very limited in the literature. Finally, the third chapter tests spatial spillover effect of institutions towards growth by utilizing an unconventional weight matrix based on institutional distance, arguably the first of its kind. In general, this thesis finds empirical support for the hypothesis “institutions matter” for growth in the developing countries being studied. The first chapter finds evidence that institutions determine growth via the factor productivity channel. In all developing countries, secure property rights and bureaucratic efficiency affect growth significantly, whereas in the East Asian countries, political institutions, in addition to both qualities, also do. During the period of high growth in the East Asian region, secure property rights and autocratic government are found to strongly determine growth, but in the post-crisis period no clear evidence on the institutional importance. The second chapter shows that the generalized trust variable widely used to reflect social capital is not suitable in panel analysis. Using alternative measures of social capital, however, this chapter finds empirical evidence that social capital significantly determines growth in developing countries, and its indirect effect running via the property rights channel is essentially larger than its direct effect. The third chapter finds that institutions spatially affect growth via an indirect route, i.e. good institutions in a country lead to economic improvement in that country and generate effects on the neighboring countries’ growth. This chapter also shows that countries with similar political institutional settings have an increased spatial dependence and converge to similar levels of growth.