The Influence Of Institutional Factors On Economic Growth

The economic growth is always a core question which attracted a large number of economists. The economists continuously make further research on the source of economic increase from different angles. In the 1960 s, as the western mainstream economic growth theory, new classical growth theory think that material capital, labor and technological progress are the source of economic growth factors. But the 1960 s to the present day, as representatives of the new institutional economics, R·H·Coase, North and Oliver Williamson, etc, proposed a system of biochemistry inside economic growth theory,which thinks that the institutional factors is the decisive factors of economic growth. That Institutional factors are difficult to quantify is the main difficulty to research Institutional influence on economic growth. Because Institutional factors are not easy to quantify and at present academia has no uniform proxy variables of Institution, so we select the index of marketization of China’s provinces produced by Fan Gang et al. and the index of China area opening to the outside world by International Cooperation Center, National Development and Reform Commission as proxy variables of Institution respectively. It is known to all that institution is considered to be endogenous. Because of the existence of endogenous problems, the ordinary least squares estimation is usually considered biased estimation. So we tried to use the instrumental variable method to estimate the model. We select the nationalization in 1978 and the reciprocal of the shortest distance to coastline of provincial capital cities as instrumental variables for the index of marketization of China and also select the reciprocal of the shortest distance to coastline of provincial capital cities as a instrumental variable for the index of China area opening to the outside world. Next, we estimated the effect on economic growth of institution by two-stage least squares method. Finally,We test the stability of the model, to examine their contribution to China’s economic growth.