| Today’s world is undergoing great changes that have not been seen in a century.A new round of scientific and technological revolution and industrial reform is on the rise.Economic growth and social development are still the common goals of all countries in the world.However,looking at the economic development process of various countries,some countries can create a growth miracle in just a few decades,while others are struggling in the middleincome trap.Similarly,novel coronavirus pneumonia has hit the foundation of the economy in a short time,and China has become the only country in all the major economies that have achieved positive growth in 2020.The foremost developed countries are still exploring a way to recovery.What makes such a big difference? This paper holds that institutional quality is the root of the economic gap.As the basic element of all economic activities,the institutional quality determines the economic growth of each country.If appropriate and effective policies can be formulated,sustainable economic growth is expected to be achieved,to improve people’s living standards.The institutional quality must be different between countries with high and low economic growth rates.A typical example is Bangladesh.As a small country in Southeast Asia,its territorial area is only 56977 square miles.According to the report of the world bank in 2012,the population of Bangladesh is about 154.7 million,ranking ninth in the world.Benefiting from the large population and sufficient labour supply,the demographic bonus is gradually becoming a major advantage for Bangladesh and attracting many foreign investors,especially in the garment sector and other agricultural industries.However,due to the energy crisis,political instability,strikes,backward infrastructure and other problems,Bangladesh’s economy failed to grow as rapidly as expected.If we try to find out the root cause of the problem,we will find that the main problem in Bangladesh is corruption,which exists in all aspects of the economy and society.Bangladesh’s low level of growth is due to the corruption of state institutions,which hinders economic development.Corruption hinders economic development,which is not only verified in Bangladesh,but also a major problem for the whole world,especially for developing countries in Asia,Africa and South America,and even developed countries.The main determinant of the differences in prosperity between countries is the differences in economic institutional quality.When a country has an appropriate and efficient institutional network,it will promote rapid economic growth.Solving the problem of growth requires institutional reform.However,this is a very difficult task in many countries,because generally speaking,the institution itself did not have the characteristics to maintain stability.The institutional quality of a society depends on the nature of the political system and the distribution of political power in the society.So far,what are the factors that have made economic and social development enter the stage of having a good economic institution? We have only a comparatively basic understanding.This analysis reveals the challenges faced by those who want to solve the problems of growth and poverty.The existence of this challenge is not surprising.People believe that the main reasons for this challenge are the quality of the political institution,economic institution,legal institutions and so on.Only when we fully recognize this and better understand these forces then can we formulate better development policies.To better understand the impact of institutional quality on economic growth,this paper constructs a quantitative and qualitative method of institutional quality to empirically test the impact of institutional quality on economic growth.This paper consists of seven chapters.The main contents of each chapter are introduced below.The first chapter is the introduction,which introduces the research background and research methods of this paper.Based on reviewing the existing growth theories,this paper accurately and completely defines the research problems from the relationship between institutional quality and economic growth.From the perspective of institutional quality,growth and the relationship between institutional quality and growth,this paper searches the background of the research problems and preliminarily verifies the feasibility of the research plan.Then it introduces the current state and development trend of the research object and research possibility and discusses the research ideas,research methods,research framework and innovation.The second chapter is the literature review,which mainly examines the relevant literature on institutional quality,economic growth and its research methods.The institutional quality has been paid more and more attention by economic researchers and policymakers.Douglas North initially divided the institution into the formal institution and informal institutions.After that,the institution has been well known and intensively used by others.D.North(1993)defined the institution from the enterprise level,including participants,companies and organizations of enterprise behaviour.Economic growth has always been one of the most important and exciting subfields of economics,and the literature on economic growth is also relatively mature and rich.As Kuznets emphasized,economic growth is very multifaceted,which is related to the growth of total output and the actual transformation of an economy.There are two main deficiencies in the literature on the relationship between institutional quality and economic growth.One is the problem quality of data.Most of the current studies use cross-sectional data,which contains far less information than panel data;The second is the endogeneity problem.As mentioned above,economic growth is multifaceted and related to all aspects of the economy and society.Therefore,in empirical research,the omission of variables,reverse causality and other problems often make the paper unable to meet the requirements of endogeneity treatment.This paper collects panel data from more than 190 countries around the world from 2000 to 2018 and uses panel models,instrumental variables,quasi-natural experiments and other methods to alleviate the problems of data quality and endogeneity to a certain extent.Based on Cobb Douglas’ s endogenous economic growth theory and the six characteristic facts proposed by Kaldor(1961),the third chapter constructs a theoretical model of the impact of institutional quality on economic growth,to reveal the mechanism of the impact of institutional quality on economic growth.In terms of the setting of the theoretical model,this paper cooperates with Daron Acemoglu(2011)and Zilibotti et al(1999)et al’s model comes down in one continuous line.There are competitive sectors that use labour and capital to manufacture final goods,and families maintain enterprises that manufacture final goods and provide labour elastically.The quality of final goods affects the investment in scientific research,and the investment in scientific research is a function of the economic and political power reward of scientific research institutions.The government may use a predatory method to receive rent from taxation.The main result of the model is that better government institutions will lead to higher long-term growth.The fourth chapter constructs the evaluation index of institutional quality.The institutional quality includes 51 indexes,including the legal institution,political institution,economic institution and informal institution,which covers almost all formal and informal institutions of a country.Based on the institutional quality index,factor analysis and cluster analysis are used to quantify the institutional quality of 197 countries in the world from 2000 to 2018.The data are mainly from the world bank,Fraser Institute,etc.Using the fixed effect model,this paper empirically tests the impact of a legal institution,political institution and economic institution on economic growth,and artistically tests the impact of an informal institution on economic growth.This chapter aims to summarize and discuss different institutional classification systems,then match the data to an appropriate institutional classification system,and form a database of basic institutional quality for all countries in the world,so that it can be updated for a long time.In this literature,there are more than 50 proxy variables of the institutional quality that is widely used.This paper uses the institutional classification based on the subject category and divides them into four groups: legal,political,economic and informal institutions.Then use the collected basic data for analysis to observe the institutional quality of the whole world and cluster analysis based on institutional quality.Finally,it makes a factor analysis of legal,political,economic and informal institutions,and puts forward how these results can be used in the intercountry analysis.The key finding of this part is that different institutional qualities(legal,political and economic)have strong causal effects on economic growth(except informal institutions),which also provides a new idea for how to apply the newly developed institutional quality index to empirical analysis.The impact of the legal,political and economic institutional quality on long-term growth is significant and quantitatively important,even after considering various control variables.This result still has some enlightenment to empirical economics and normative economics.However,a compact institutional quality indicator cannot cover all aspects of the institution,so it needs to be analyzed separately according to its categories.The analysis of this paper shows the importance of different institutional qualities on the measurement of growth,which will help to open the research in this direction.The fifth chapter takes corruption as the starting point,using the corruption perception index provided by Transparency International,the least square method(OLS)is used to test the relationship between institutional quality and economic growth.And the total area,latitude,inland and precipitation of the country are selected as instrumental variables,further it empirically test the impact of institutional quality on economic growth.While corruption affects the rate of economic growth,economic growth also affects corruption(Daron Acemoglu et al.,2012;Beck & Laeve,2006;EASTLEY,William and Levin,2003;Glaeser et al.,2004;Sala-i-Martin & Subramanian,2008).This paper examines the endogenous relationship between corruption and economic growth.For example,reducing corruption has a positive impact on economic growth.Compared with the pre-transition period,in the initial stage and transition period of the economy,the government will be more inclined to control corruption,to achieve better economic growth(Beck & Laeven,2006).In this econometric method,by controlling the variables affecting corruption and growth,the country’s corruption score provided by Transparency International and the world bank’s per capita GDP data are used to avoid omitting variable bias.Finally,the weak instrumental variable test method is used to test the effectiveness and shortcomings of the instrumental variables used in this part.This study is mainly related to two pieces of literature.Firstly,it related to much large literature on the impact of geography and economic growth.Secondly,this work also involves the literature linking corruption(institutional quality)and economic growth.The empirical analysis of the relationship between the institutional quality index and economic growth is becoming more and more feasible and desirable.It assumes that corruption is the only factor determining the quality of the institution.When policymakers do not have the opportunity to rent and corruption,the institution will be effective,thus promoting economic growth.This part of the research has done further work based on other literature.(1)Based on the differences of endowment,historical and cultural factors,this paper puts forward the conceptual framework of corruption.(2)Investigate the relationship between exogenous components of corruption and economic growth in a sample of many countries.(3)In the panel data framework,the instrumental variable(IV)method,more specifically,the two-stage least squares(2SLS)method,is used to solve the endogeneity problem.This analysis reinforces the work done by many researchers(easterly,William and Levine,2003;Beck &Laeven,2006).Of course,it must be pointed out that this study has several limitations.Firstly,it defines the determinants and consequences of corruption(institutional quality)in a broad sense.It does not use other metrics that capture a particular dimension.Second,most of the instrumental variables used for analysis are fixed in nature,so it is difficult to determine the effect of the time change.Third,while controlling historical and cultural factors,we only pay attention to corruption.The fifth chapter studies the impact of corruption on economic growth after taking geographical factors as the main factor affecting economic growth according to the views put forward by other literature.In the case of corruption,a large number of natural and geographical resources may not bring economic growth.Therefore,before formulating appropriate policies,policymakers should pay attention to combating corruption.Over the past two decades,a large number of cases in various countries have shown the adverse effects of corruption.Using data,the world bank and Transparency International found that countries face more serious corruption if these institutions are relatively less developed.Corruption is an institutional problem,and the institutional quality determines the economic process and plan.In short,it affects all aspects of life in the economy.The possible endogeneity problems between corruption and per capita GDP are analyzed by 2SLS and the random effect model.Although there is no perfect solution to the endogeneity problem,it is best to use panel data and 2SLS to control the endogenous problem.This is only one of the many steps to solve the endogeneity problem.In addition,it considers historical and cultural factors that have been used in the empirical literature and uses legal origin,ethnicity,language and religion as control variables for analysis.The results show that as long as corruption is in the middle,the natural endowment can not play a role in economic growth because natural endowment should take institutional quality as a connection to affect per capita GDP.The sixth chapter introduces the exogenous impact of the Bangladesh liberation war in 1971 as the proxy variable of institutional quality and uses the difference-in-differences method(DID)to study the impact of institutional quality changes on economic growth in South Asian countries.About 60 years ago,the Bangladesh liberation war attracted worldwide attention.The war was held in East Pakistan(Bangladesh)from March 26,1971,to December16,1971,that is,the separatist region in eastern India.This is the third modern war between Pakistan and India in South Asia after their independence,and it is also one of the bloodiest wars.About 3 million people died,most of them massacred,which caused a huge humanitarian emergency(Mookherjee,2006).The cause of the 1971 war was the administration of East Pakistan as a colony of West Pakistan,which has been going on since the establishment of Pakistan in 1947.The war of liberation in Bangladesh is regarded as one of the excessive tragedies of modern society.This study puts forward and tests a hypothesis focusing on political economy,and studies why there are so many differences in institutional structure among countries in this region;The study also proved the importance of institutional quality in explaining the differences in economic achievements of war-affected economies.Existing studies have investigated the growth experience of war-affected economies in the past decade,covering wealth level,political stability,accumulation of material and human capital,reform strategy,macroeconomic policy and initial conditions,to explain the significant differences in growth among war-affected economies(Benhabib & Rustichini,1996).Nevertheless,in their literature review on the growth of war-affected economies,the role of institutional quality has been largely ignored in the empirical analysis of economic growth.Compared with the general cross-border growth literature,this part of the study considers the importance of institutional quality.This study uses the impact of the 1971 war on the institutional construction of South Asian countries(GDP,GDP growth,per capita GDP and per capita GDP growth)and uses the estimation strategy of difference-in-differences.In addition,this study proposes another method to measure economic growth,namely GNI.This study attempts to provide a relatively comprehensive analysis by connecting war and institutional quality,providing GDP growth,GDP growth,per capita GDP,per capita GDP growth and other measurement methods.The difference-in-differences method is based on the evidence that the participating countries that fought in East Pakistan(Bangladesh)were the main affected areas of the war.Therefore,this study uses Bangladesh,India and Pakistan as the treatment group of this analysis.On the contrary,neighbouring countries that are not affected by the war and have similar productivity,culture,religion,race and population are regarded as the control group.These countries are Afghanistan,Bhutan,Nepal,Maldives and Sri Lanka.This study uses the quasi-experimental method to test the central theory of war in empirical analysis.The widely recognized institutional differences in the same region are used as counterfactual results,which are applied to the difference-in-differences method.This strategy can ensure that the unobserved confounding factors remain stable in the early stage,and there will be no early manipulation.As far as we know,this is the first time to observe the impact of war on institutional quality and to accurately control and deal with it.The research on institutional change is usually carried out at very different levels and contains different measurements.Other robustness tests included regression controlling pre-existing time trends(common trends),balance tests of covariates,and various placebo trials in the treatment group.The key findings of Chapter 6 are as follows: the institutional quality or economic growth of countries exposed to war and conflict for a long time is lower than that of countries not involved in the war.Although the short-term effect does not seem to be effective when only GDP or per capita GDP is considered,a more in-depth analysis of their growth rate still confirms the causal relationship between them.The study also comes to navigate the significant impact of war on the system.According to different indicators of institutional quality,the results of the balancing test,common trend test and various placebo tests are still robust.The seventh chapter is the research conclusions and policy recommendations.Through theoretical and empirical analysis,this paper obtains the following main conclusions: first,this paper gives the ranking of institutional quality of 197 countries in the world,which can track whether a country’s relative institutional environment is improving or deteriorating.On the whole,the quality of economic institutions in all countries in the world shows an upward trend,the quality of the legal institutions and informal institutions shows a downward trend and the change of political-institutional quality is not obvious.Specifically,the development trend of institutional quality in various countries shows significant heterogeneity.Second,the results based on the fixed effect model show that institutions can promote economic growth by improving productivity.Among them,the legal institutions and political institutions have a significant impact on economic growth,and there is no significant positive correlation between economic and informal institutions and economic growth.When other control variables and lag terms are added,the above conclusion is still robust.Third,the regression results based on the instrumental variable method show that institutional quality(corruption index)can significantly promote national economic growth,that is,the change of one standard deviation of corruption index will significantly increase the per capita GDP by 0.7 standard deviations.Other empirical evidence from countries around the world strongly supports the conclusion that the corruption index has an important impact on the utilization of resource endowment.It is not difficult to find that a good institution is a key factor in reducing the resource curse.Fourth,based on The results of the difference-in-differences method show that compared with the countries not affected by the 1971 Bangladesh liberation war,the countries suffering from the war have been greatly negatively affected for a long time,and their economic growth is low.That is,war and conflict have a significant negative impact on the long-term GDP growth rate.After controlling the state fixed effect,the average treatment effect shows that war conflict also significantly affects all different proxy variables of economic growth.Common trends,equilibrium trials and different placebo trials show that the above results are still robust.To sum up,the main contribution and innovation of this paper are to further explore the different effects of different types of institutional quality on economic growth after considering the relationship between economy,geography and conflict in different countries,especially in South Asia.In particular,this paper also reveals how the conflicts that occurred decades ago led to institutional differences and how they affected the current economic growth.Through the above research on different institutional channels and institutional quality measures,we have enhanced our new understanding of the institutional effect of economic growth.In addition,based on the research on the relationship between institutional quality and economic growth from a global perspective,this paper provides theoretical thinking and empirical evidence for the construction of a community of human destiny at the institutional level,and effectively promotes the wide and in-depth dissemination of the concept of a community of human destiny. |
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