Research On Institutions And Their Impact On Economic Growth

In the recent decades, the importance of institutions on economic growth has been recognized among many scholars and policy-makers. For institutions are still taken as part of natural factors and excluded from the framework of the mainstream growth theory, the mainstream growth theory fails to discover the impact of institutions on the economic growth. Consequently, when we explore the reasons for the economic phenomena, it fails to offer a forceful explanation that why the economy takes off or lands in a stagnant state during various periods of time in some countries, especially developing ones.To conquer such limitation of the mainstream growth theory and thus to explain the causes of economic growth more forcefully, in this article, institutions are introduced into the standard growth theory. Combined the institutional analysis and the modern growth theory, this research is conducted on what are the fundamental growth-supporting institutions and what channels are involved through which the institutions exert a significant influence in economic growth. Based on this understanding, a new growth model is produced that is inclusive of the variable of institution, by this model, the dynamic relationship between institutions and economic growth and the effect of institutions on economic convergence are revealed successfully. To conclude this research, the complicated relationship among institutions is analyzed and some propositions for institutional building are made based on such relationship.According to the analysis and the deduction of the growth model, the conclusions are drawn as follows:Firstly, the fundamental growth-supporting institutions include property rights, regulatory institutions, institutions for macroeconomic stabilization, legal institutions and judicial system, and political institutions.Secondly, the institutions produce an influence on economic growth through their impact on investment and efficiency. The higher quality of institutions is, the larger scale investment has. The higher quality of institutions is, the more quickly the technological progress is made, and division of labor can meet a higher level, thus efficiency will result in a more successful advance.Thirdly, the higher quality of institutions is, the more quickly economic growth goes. And the economy exist conditional convergence with quality of institutions. According to the conclusion, we can get a deduction that the latter advantage only lies in the undeveloped countries which have higher quality of institutions or can improve their quality of institutions continuously. If a country has poor quality of institutions and has no ability to improve it, then its economy is more likely to decline for a long time.Fourthly, since there is an important relationships among the institutions, that is, reliance, interaction, replacement and rejection for each other, while each country's primary condition is in a variety, thus there doesn't exist a unique institutional blueprint or a unique mode for institutional building that most favorable for economic growth. Each country should grope for the institutional arrangement and the mode of institutional building on the basis of its real situation and condition.