How does Institutional Quality Influence Economic Growth? Evidence from Selected Asian Regions
Keywords:Economic Growth, Human Capital, Innovation, Institutional Quality, Sustainability
This study investigates the relationship between institutional quality, economic growth, investment, government expenditures, human capital, income inequality, trade openness, and urbanization in 20 Asian countries using panel data from 1984 to 2020. By reducing a big number of variables into a smaller one, Principal Component Analysis (PCA) is used to reduce the dimensionality of various proxy available to measure institutional quality (IQ). For one percent increase in institutional quality in East Asia, Central Asia, Middle East Asia, and South Asia, the increase in per capita GDP is 0.048 percent, 0.205 percent, 0.221 percent, and 0.092 percent, respectively. Investment and urbanization have positive significant impact on growth in East Asia and Central Asia. human capital has positive significant impact on growth in all regions. The negative relation of growth is observed with trade in East Asia and Central Asia while, trade has positive significant impact on growth only in Middle East Asia. The negative impact of growth is observed with government expenditures in all regions. The negative impact of growth is observed with income inequality in all regions. The government of these countries should improve the level of institutional quality for economic growth. The government should take steps for poverty elimination because income inequality showed a negative impact on economic growth. It is also suggested to improve human capital because it is useful for the economy. It is also required to increase the rate of saving in the country in order to increase the level of investment, which in turn enhances the gross fixed capital in the country.