The Causal Relationship Between Institutions and Economic Growth: An Empirical Investigation for Pakistan Economy

Abstract

This paper investigates relationship between institutional quality and economic performance in Pakistan using the Johansen-Juselius cointegration technique and the Granger causality test. The study results indicate that Institutions and growth are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between Institutions and growth is uni-directional.However, there is no short run causality from Institutions to growth and vice versa. Therefore, as a policy implication that institutional quality may cause to the sustainable increase in country’s income in the long run, and success of any policy could be influenced by the soundness of institutions.

Financial Development, Fiscal Policy and Economic Growth: The Role of Institutional Quality in Pakistan

“…A large number of studies investigate the role of financial development, fiscal policy, and institutional quality on economic growth through different ways (Asghar & Hussain, 2014;Ahmad & Malik, 2009;Siddiqui & Ahmed, 2010;Bose, Emranul & Osborn, 2007;Shafique & Haq, 2006;Khan et al, 2005). Ahad et al (2017) study the impact of financial development on Pakistan's economy, but consider the industrial sector only.…”

“…Prior economic literature has highlighted the significance of an efficient institutional and legal framework for enhancing economic growth (Valeriani & Paluso, 2011). Inefficient transmission mechanisms and institutions may result in low productivity (Siddiqui & Ahmed, 2010). Better quality of institutional support reinforces the rate of investment, which in turn improves the capital creation process and enhances economic growth (Kirkpatrick,Parker& Zhang, 2006;World Bank, 2003).…”

“…A significant amount of studies examine the connection between institutions and economic growth and find mixed evidence (Kauffman, Kraay & Mastruzzi, 2005;Rodrik, Subramanian & Trebbi, 2004). On the one hand, studies find significant impact of higher institutional quality on growth and argue that the impact is more pronounced in the long-run as compare to the short-run (Acemoglu & Johnson, 2005;;Djankov, McLiesh & Ramalho, 2006;Siddiqui & Ahmed, 2010; . On the other hand, studies find that the impact of institutions on economic growth is different across countries (Farole, et al, 2011. Fiscal gap is defined as the deficiencies of government investments in infrastructure and human capital (Todaro & Smith, 2015).…”

“…Furthermore, it seeks to explore the role of institutional quality in economic growth process in Pakistan. Many studies have investigated the role of financial development, fiscal policy, and institutional quality on economic growth through multiple channels (Asghar& Hussain, 2014;Ahmad & Malik, 2009;Siddiqui & Ahmed, 2010;Bose, Emranul & Osborn, 2007;Shafique & Haq, 2006;Khan et al, 2005) but this study explores, another dimension of the underlying relationship.…”

Financial Innovation and Financial Inclusion Nexus in South Asian Countries: Evidence from Symmetric and Asymmetric Panel Investigation

“…Third, financial innovation in the form of institutional development in the financial system expedites the financial process with greater accessibility to formal financial service, such as internet banking and mobile banking services (Raffaelli and Glynn 2013;Hargrave and Ven 2006), microfinance institutions, NGOs, and hybrid organizational forms (Battilana and Dorado 2010). The institutional availability with offering financial service improves the economy by including a greater number of people in the mainstream economic development process (Epstein 1992;Siddiqui and Ahmed 2009;Glaeser et al 2004).…”