Institutional Reforms and Their Impact on Economic Growth and Investment in Developing Countries

Abstract

It is widely accepted that the economic and social system may be more efficient by reforming institutions. Institutional reforms are attempts to change the rules affecting human interactions and these reforms are fundamental for development and economic prosperity. The reforms can be divided into two categories; political and economic institutional reforms. It is need of the hour to determine the category of reform that is more suitable for developing countries. Moreover, a vast literature describes the impact of institutional reforms but little focused on exploring their impacts on macroeconomic activities. So, this study is an effort to determine the impact of institutional reforms on macroeconomic variables by considering the panel data of 122 developing countries covering the time span from 1996 to 2019. The study applied treatment analysis using the difference-in-differences technique to gauge the effects of reforms. Besides, it will be interesting to know the causes triggering the institutional reforms in developing countries. The findings of the study reveal that economic reforms are more important as compared with political reforms to grow the economies. The countries focusing on political reforms are not able to overcome the economic crisis. Moreover, both types of reforms do not cause each other in these countries.

Impact of institutional quality and human capital creation on economic growth in Bangladesh: evidence from an ARDL approach

“…Any effort to improve the INQ will promote the long-run economic performance of the economy. The outcome is similar to the findings by Alexiou et al (2014), Nawaz et al (2014), Nguyen et al (2018), Salman et al (2019), Marija (2020), Sule (2020) and Zhao et al (2021) who reported important contribution of INQ to EG. It implies that policymakers should strive to improve the country's institutions and their service quality to sustain EG.…”

“…(2018), Salman et al. (2019), Marija (2020), Sule (2020) and Zhao et al. (2021) who reported important contribution of INQ to EG.…”

“…Sule (2020) used time series twelve-monthly data from 1979 to 2018, employed the least square technique, examined the effect of "INQ on EG" in Nigeria, and reported that INQ positively influenced EG. Zhao et al (2021) examined the influence of institutional reforms on developing economies' EG and investments. They employed two kinds of reforms, i.e.…”

Impact of financial development and institutional quality on remittance-growth nexus: evidence from the topmost remittance-earning economies

“…Abubakar (2020) utilized time-series data over the period 1979–2018, applied the OLS method, scrutinized the consequence of “INQ on EG” in Nigeria, and conveyed that INQ stimulated economic progress. Zhao et al. (2021) observed the impact of formal reforms on developing countries’ investment and economic expansion.…”

Institutional Complexity of Hr Practices: Challenges for Sustainable Business

“…It is interesting to note that institutional improvements are required whether the economy is growing or in a state of crisis. If a country is in the midst of a crisis, reforms are an important aspect of crisis management (Zhao et al, 2021). But the sequencing of reforms matters a lot.…”