Institutional quality, financial development and sustainable economic growth among <scp>lower income</scp> countries

Pradhan, Rudra P.; Nair, Mahendhiran; Arvin, Mak B.; Hall, John H.

doi:10.1111/1477-8947.12291

Cited by 14 publications

(6 citation statements)

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“…Based on panel cointegration tests, fully modified least squares, and dynamic ordinary least squares, the researchers conclude that financial development and institutional quality are the driving force for sustainable growth South Asia. This is also proven by Pradhan et al (2023) who show that the three variables complement each other in short run. In the long run, financial development, and institutional quality boost economic growth, with institutional quality playing a greater role than financial development.…”

Section: Institutional Quality Financial Development and Economic Growthmentioning

confidence: 53%

Financial development, institutional quality and economic growth in countries in sub-Saharan Africa (SSA)

Mbulawa,

Chingoiro

2024

IJBES

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Over the years, there have been huge variations in the growth performances of the economies in SSA. Whilst these disparities can be attributed to a wide range of factors, it is generally understood that differences in their economic structures explain the capacity for generating growth and absorbing shocks during a recession. This study contributes to literature by examining the impact of institutional quality and financial development on economic growth in low- and middle-income countries. Data was obtained from the World Bank and covered the period from 1975 to 2020. The study employed an ARDL model to establish both short and long run dynamics in the two sub samples. The study confirmed both short and long run causality from financial and institutional quality to growth. Institutional quality enhances growth in both low- and middle-income countries in the long run. Whilst the direction of the impact is the same, the magnitude of the impact of institutional quality is different within the two categories. Institutional quality plays a more significant role in low-income countries compared to middle income economies. The study brings out potential financial fragility and systemic risks in financial institutions among countries in SSA. Policies that enhance the quality, consistency, and uniformity of legal reasoning in judicial decisions are ideal. Reducing the risk profile for investments may enhance the flow of credit to the private sector by financial institutions.

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Section: Institutional Quality Financial Development and Economic Growthmentioning

confidence: 53%

Financial development, institutional quality and economic growth in countries in sub-Saharan Africa (SSA)

Mbulawa,

Chingoiro

2024

IJBES

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“…In the field of new institutional economics, whether it be economic institutions, political institutions, or just governance levels, there is a wealth of theoretical and empirical research on the impact of institutions on economic performance [41,42]. Existing studies widely argue that a better quality institutional and governance system usually has a positive impact on economic performance, because higher quality institutions will facilitate more efficient utilization and allocation of resources [24] and help optimize collective and individual economic decisions [42], thereby enhancing the economic output of economic entities. Sound institutions can also promote economic performance by reducing resource wastage and market inefficiencies like rent-seeking behaviors through the adoption of advanced technologies and management measures [24].…”

Section: Governance Fragmentation Of Forestry Communities and Economi...mentioning

confidence: 99%

“…From the perspective of transaction costs, an imbalance between costs and benefits can undermine institutional effectiveness and even lead to institutional collapse [20]. A sound institutional framework can reduce the waste of management resources and market inefficiency through better management measures [24], thereby promoting economic performance. In other social science research fields, such as public affairs management, however, the importance of transaction costs has yet to receive widespread attention.…”

Section: Introductionmentioning

confidence: 99%

The Impact of the Governance Fragmentation of Forestry Communities on the Economic Performance of State-Owned Forest Enterprises in Northeast China: An Empirical Analysis Based on the Transaction Cost Perspective

Ji,

Wan,

2024

Forests

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The 2015 reform of state-owned forest regions (SOFRs) in Northeast China required state-owned forest enterprises (SOFEs) to transfer their governmental and social roles to local authorities. This transition, however, created fragmented governance within forestry communities due to the absence of cooperative mechanisms between SOFEs and local governments. This study examines the economic effects of this governance fragmentation on SOFEs and explores the underlying mechanisms. The research combines new institutional economics and transaction cost theory to develop hypotheses and employs empirical analysis using fixed-effects models on data from 39 SOFEs, belonging to two forest industry groups from 2015 to 2022, collected through surveys and field investigations. The findings indicate that governance fragmentation has a significant negative impact on the economic performance of SOFEs. The high transaction costs incurred by SOFEs in achieving community co-governance with local governments are identified as a key mediating mechanism. These costs lead to resource dispersion and diminished trust between SOFEs and local governments. The economic impact of this governance fragmentation varies based on the economic conditions of the SOFEs, their operational scales, and the clarity of geographical management boundaries with local governments. To mitigate the adverse effects of governance fragmentation, the study suggests proactive institutional designs to reduce transaction costs. These findings offer new insights into the corporate social responsibilities of Chinese SOFEs and suggest improvements in the governance structures of forestry communities in SOFRs in Northeast China. Additionally, the study expands the application of transaction cost theory in public affairs governance and enhances quantitative research on the economic impact on enterprises.

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“…Following these authors, while Abaidoo and Agyapong (2022), through a study of SSA economies, show that institutional quality improves the pace of FD among the economies of the subregion, Bekana (2023) specifies that it is the development of governance institutions that favor financial sector development. In the same vein, Pradhan et al (2023) use a vector error correction model (VECM) and the Granger causality method on a sample of 79 low-income countries to show that FD and institutional quality are mutually reinforcing in the short term. However, in the long run, both FD and institutional quality can fuel economic growth, and that institutional quality has a greater positive effect on economic growth than FD.…”

Section: Review Of the Literaturementioning

confidence: 99%

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

Sigue,

Drabo,

Woni

et al. 2023

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Purpose This paper aims to assess the short- and long-run effects of the interaction between institutional quality and financial development (FD) on the competitiveness of the WAEMU economy over the period 2007–2018. Design/methodology/approach The methodology consisted of cross-referencing a synthetic indicator of FD with indicators of institutional quality and then estimating an auto regressive distributed lag model. Findings The results of the pooled mean group and dynamic fixed effect estimation show a positive and significant impact of this interaction on the competitiveness of the economy in the long run. In the short run, the results are quite similar to those in the long run for the direct effects but different for the crosses. Also, the analysis of country specificity shows that the results are similar to those in the short run since the interaction between FD and institutional quality (political stability and government effectiveness) negatively affects the competitiveness of Burkina Faso, Ivory Coast and Mali, and positively affects the competitiveness of Benin and Senegal. Social implications These results suggest the need for effective policies to improve the quality of institutions to enhance the mobilization of financial resources through FD to ensure the competitiveness of economies. Improving the quality of the political and institutional environment is a prerequisite for economic competitiveness. Originality/value The paper is in line with the New Institutional Economics that developed in the 1970s. This referential framework is a heterogeneous body of work that encompasses works whose common point is the determination of the role of institutions in economic coordination. Unlike previous studies, which have focused on the contribution of the interaction between institutional quality variables and FD on economic growth, this paper analyzes the effects of this interaction on economic competitiveness. It, therefore, constitutes a contribution to this literature and aims primarily to fill this gap.

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Institutional quality, financial development and sustainable economic growth among lower income countries

Cited by 14 publications

References 100 publications

Financial development, institutional quality and economic growth in countries in sub-Saharan Africa (SSA)

Financial development, institutional quality and economic growth in countries in sub-Saharan Africa (SSA)

The Impact of the Governance Fragmentation of Forestry Communities on the Economic Performance of State-Owned Forest Enterprises in Northeast China: An Empirical Analysis Based on the Transaction Cost Perspective

Short- and long-run relationship between financial development and economic competitiveness in WAEMU: does institutional quality matter?

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