An Analysis On The Role Of The Institutional Factors In The Economic Growth

With the ongoing and deepening of China’s economic reform, the mantra "promoting developmentthrough reform" has also been mentioned much more frequent. Analysis on economic growth is a gradualprocess, especially for such a transition economy of special system, like China, in the course of the researchon transition economies, economists have put forward a variety of standards of the direction and goals oftransformation that reform should go in and reach for. However, the result is very different, some attainedeconomic success, others fell into a long period of stagnation. Reform means broadly is to reform andimprove the institutions, establish a good system of institutions. While formal institutions in China aregradually established and perfected, but heritage of thinking logic and the traditional way people behave tosome extent hinder the growth of economies, what the coastal areas economic is superior to inland lies inthe attitude and actions "comply with promises", the role of rules is to main them.Economic growth itself includes optimization of institutions and the causal link between them is notclearly cut, however what you can be sure is that some countries took off due to institutional strengthscaused by accidental factors, which fuelled economic growth, the next process is the interaction betweenthe various elements of economic growth, thus economic growth led to further system optimization,advantageous relative to other countries. For a causal relationship between the two, it’s not easy todifferentiate for the research objects are current economic conditions. Internationally, there is aconvergence trend in the understanding of institutions-marketization and privatization. However withrespect to China, we must not blindly pursue market-oriented process, the role state-owned enterprises playin the economy should not be underestimated. Finland’s success and failure of other CIS countries, is agood description that the privatization of State-owned enterprises is a long-term process of gradual, not aSprint.In the analysis of relationship between institutions and economic performance, we don’t have to spendspecial care on its explained effect on economic growth, because whichever aspect is used to measureinstitutions, we just understand a little about institutions. What we have to do is to understand the influenceproduced by perfecting of institutions, on the economic development,from the overall, especially in reducing rent-seeking behavior, encouraging more investment enter production activities, perfecting ofinstitutions has an immediate effect.This article spend effort on analyzing the relationship between economic growth and the institutionsboth for theoretical and empirical aspects.The paper is based on current theories, combined with studyabout the influence of institutions on economic growth, home and abroad,from the experience study on theeffects of institutions on economic growth from the time series, combined with the analysis of provincesand35central cities, we take on analysis of relationship between institutions and economic growth. Thisarticle provides a basis for empirical analysis through creating mathematical models, conducting regressionanalysis and interpreting its results.We collect time series data of China from1984to2010, cross-sectiondata of China’s30provinces(except the Tibet autonomous regions) as well as35cities in year2010.Thenwe establish time series models or cross-section data models, to test the theory.In this paper, institutions have a great relationship with technological progress, capital input, andempirical research shows that institutions promote the development of them and thereby contributing toeconomic growth. From the detail, when taken as an measure of institutions, corruption’s decreasepromotes TFP growth. In the analysis of rent-seeking activities, the perfection of the institutional systemcan reduce the marginal returns of rent-seeking activities and reduce the degree market actors involved inrent-seeking activities. As a result, more resources flow to the real productive activities. In fact, causalrelationships between these variables cannot be definitely defined. As described above, historical factors inthe accident and path dependence affect, strengths could be enhanced. In order to catch up with thedeveloped countries, disadvantaged economies need to learn its advanced institutions, rather than simplyintroduce technology and management skills.During the diagnostic analysis of economic issues in China, in order to identify the primary factorswhich influence, analysis is aimed at finding out problems. What the problems China’s reform encounteredat first, have been resolved through the policies different from that of the Washington consensus. Whatshould be done next is that local conditions must be defined. Economic problems are fastened to each other,the invisible hands of Government should play a role in resolving the problems such as market failures andexternalities the invisible hand cause. Thus, the Government’s policy that is a part of formal system makesitself another channel institutions play role in economics. Institutions are of inevitable importance, although from the empirical analysis of China,30provincesand35Center cities,we can see technology progress and human capital inputs explained much more foreconomic differences than institutions, however when the discussion before is combined, we can reach sucha conclusion: Institutions are fundamental elements, mainly promote economic growth through technologyprogress and human capital inputs and other intermediate factors, institutions play a vitual role.