Revisiting the institutions-growth nexus in developing countries : The new evidence

In this paper we revisit the institutions-growth nexus in developing countries including the East Asian region. The region has in the past three decades not only achieved spectacular economic growth, but also experienced one of the worst financial crises, i.e. Asian financial crisis (AFC) in 1997-1998. Utilising the neoclassical growth framework augmented with institutional controls and latest estimation technique in panel data analysis, this study finds evidence of positive institutions effect on growth. Nonetheless, the evidence is limited to security of property rights only with no similar evidence on efficient bureaucracy and strong government. This study also uncovers the channel of the institutional effects on economic growth, i.e. via total factors productivity. This study adds to the literature of East Asian growth, which hitherto, to the best of our knowledge, has seen only two studies, namely Rodrik (1997) 'TFPG controversies, institutions, and economic performance in East Asia' and Campos and Nugent (1999) 'Development performance and the institutions of governance: Evidence from East Asia and Latin America' that document the evidence of institutional importance on economic growth, and these studies are however for the period before the AFC.