Economic Institutions and Growth Nexus: The Role of Governance and Democratic Institutions—Evidence from Time Varying Parameters’ (TVPs) Models

Abstract

The present study has investigated the channels through which the linkage between economic institutions and growth is gauged, by addressing the main hypothesis of the study that whether quality of governance and democratic institutions set a stage for economic institutions to promote the long-term growth process in Pakistan. To test the hypothesis empirically, our study models the dynamic relationship between growth and economic institutions in a time varying framework in order to capture institutional developments and structural changes occurred in the economy of Pakistan over the years. Study articulates that, along with some customary specifics, the quality of government and democracy are the substantial factors that affect institutional quality and ultimately cause to promote growth in Pakistan. JEL Classification: O40; P16; C14; H10 Keywords: Economic Institutions, Growth, Governance and Democracy, Rolling Window Two-stage Least Squares, Pakistan

An Inquiry into the Significance of Selected Institutions in the Economic Development of Pakistan

“…Syed et al (2014) further reinforce the notion put forth by Acemoglu et al by examining the role of certain important variables pertaining to institutional quality such as the rule of law, control of corruption and voice and accountability in the economic development of Pakistan revealing their substantial influence on growth rate of the economy. Murtaza and Faridi (2016) explored the multifaceted bond between political institutions, economic growth, and governance in Pakistan. The study advocates that political institutions strongly affect the inherent foundation of economic institutions and eventually the magnitude of the economic growth rate.…”

“…The country appears to perform low on fundamental economic indicators, a deficiency that has its origins in low-quality institutions (Madni and Chaudhary, 2017). The low-quality institutions and poor economic growth are perhaps endogenous where both seem to have mutually reinforced each other over time (Murtaza and Faridi, 2016). Whereas the country possesses rich natural resources endowment, a strategic geographical position and diverse human capital, the nation lags behind its many counterparts in economic growth (Sherani, 2017).…”

An Empirical Nexus Between Institutions Quality and Economic Performance: A Case Study of Developing Asia

“…The research carried out by Nunn and Wantchekon (2011) and Algan and Cahuc (2010) provided valuable insights into the relationship between institutions, cultural factors, and the persistent existence of economic inequalities. Furthermore, the investigations carried out by Hall and Jones (1999) and Glaeser et al (2004) established that institutional quality has a significant influence on both innovation and productivity Murtaza et al (2016) have examined the pathways responsible for the link between economic growth and institutions. Studies have shown that the caliber of democracy and governance has a substantial influence on the quality of institutions, which in turn play a role in the progress of a nation, along with its unique traditions.…”