The Effectiveness Of Endogenous Institution In Economic Growth

The importance of economic growth to human society is self-evident, and people have never stopped exploring the sources leading to growth. Like what the old saying indicates: one can know the alteration of the society by viewing its history, by re-examining the general environment for world's economic growth, we have recognized that we are now living in a much more distinct era compared with history, and consequently, a key variable that of great significance in affecting economic growth comes into the eyes of mainstream economic growth theories -- Institution. China's growth miracle is a convincing example regarding how the institution affects growth. Starting from 1978, when the Opening-up Policy applied, China has implemented a transition from a planned economy to a market economy, and the GDP soared ever since. As a result, people cannot help to associate China's growth miracle with the transformation of the economic institution. Based on such background, the paper mainly analyzed the effectiveness of the endogenous institution to China's economic growth from the perspective of institutional change.First and foremost, this paper built a growth model with an endogenous institutional factor, and then tried to explore a path how endogenous institutional factor influenced growth, which can be illustrated as "Institution-Technology Diffusion-Economic Growth ". This part is in the hope of revealing institution's functions in facilitating economic growth.Then, the paper ran an empirical analysis to demonstrate the relationship between endogenous institution and economic growth. Firstly, five market indicators are combined as institutional factor by the means of Factor Analysis, and then the combined institutional factor is enclosed within a measurement model which also comprises Physical Capital, Labor, and R&D. With time serial data extracted from 1978-2009, the paper has taken advantage of Cointegration theory and empirically analyzed the relationship between China's growth and institutional change, finally came up with the conclusion that China's economic growth and institutional factor has long-term cointegrational relationship, and the institutional factor has partly Granger caused China's economic growth.Finally, the paper summarized problems existed in China's economic system and reform process from 5 angles, including Opening-up, the Exchange Market, the Property Market, the Investment Market, the Financial Market and the Industrial Structure; in the end, the paper proposed to create a healthy environment to attract foreign investment and more opened institution to facilitate foreign trade, to accelerate building-up of property institution, to diversify the investment institution, to establish more market-oriented financial institution and to speed up the reshuffle and reform of industrial structure.