Governance and Economic Growth: Evidence of Ten Asian Countries

Authors: Chiung-Ju Huang

Abstract:

This study utilizes a frequency domain approach over the period of 1996 to 2013 to examine the causal relationship between governance and economic growth in ten Asian countries, which have different levels of democracy; classified as “Free”, “Partly Free”, and “Not Free” countries. The empirical results show that there is no Granger causality running from governance to economic growth in “Not Free” countries and “Partly Free” countries with the exception of Singapore. As for “Free” countries such as South Korea and Taiwan, there is a one-way causality running from governance to economic growth. The findings of this study indicate that policy makers in South Korea, Taiwan, and Singapore could use governance index to improve their predictions of the future economic growth.

Keywords: Economic growth, frequency domain, governance, Granger causality.

Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1107870

References:

[1] D. Kaufmann, A. Kraay, and P. Zoido, “Governance matters,” World Bank Policy Research Working Paper, no. 2196, 1999.
[2] D. Dollar and A. Kraay, “Growth is good for the poor,” Journal of Economic Growth, vol. 7, pp. 195-225, 2002.
[3] Rigobon R. and D. Rodrik, “Rule of law, democracy, openness, and income: estimating the interrelationships,” Economics of Transition, vol. 13, no. 3, pp. 533-564, 2005.
[4] Easterly, W. and R. Levine, “Tropics, germs and crops: how endowments influence economic development,” Journal of Monetary Economics, vol. 50, no. 1, pp. 3-39, 2003.
[5] H. L. F. De Groot, G. J. Linders, P. Rietveld, and U. Subramanian “The institutional determinants of bilateral trade patterns,” Kykios, vol. 57, no. 1, pp. 103-123, 2004.
[6] H. Jalilian, C. Kirkpatrick and D. Parker, “The impact of regulation on economic growth in developing countries: a cross-country analysis,” World Development, vol. 35, pp. 87-103, 2006.
[7] M.-P. Marı´a-Teresa, M.-A. Galindo-Martı´nb, and D. Ribeiro-Sorianoc, “Governance, entrepreneurship and economic growth,” Entrepreneurship and Regional Development, vol. 24, pp. 865-877, 2012.
[8] V. C. Arusha, “Government expenditure, governance and economic growth,” Comparative Economic Studies, vol. 51, no. 3, pp. 401-418, 2009.
[9] Huynh, K. P. and D. T. Jacho-Cha´ vez, “A nonparametric quantile analysis of growth and governance,” Advances in Econometrics, vol. 25, pp. 193-221, 2009.
[10] A. Gani, “Governance and growth in developing countries,” Journals of Economic, vol. 45, no. 1, pp. 19-39, 2011.
[11] B. Fayissa and C. Nsiah, “The impact of governance on economic growth in Africa,” Journal of Developing Areas, vol. 47, no. 1, pp. 91-108, 2013.
[12] J. Breitung and B. Candelon, “Testing for short- and long-run causality: a frequency-domain approach,” Journal of Econometrics, vol.132, no. 2 , pp. 363-378, 2006.
[13] J. Geweke, “Measurement of linear dependence and feedback between multiple time series,” Journal of the American Statistical Association, vol. 77, pp. 304-324, 1982.
[14] Y. Hosoya, “The decomposition and measurement of the interdependence between second-order stationary process,” Probability Theory and Related Fields, vol. 88, pp. 429-444, 1991.
[15] H. Pesaran, Y. Shin, and R. J. Smith, “Bounds testing approaches to the analysis of level relationships,” Journal of Applied Econometrics, vol. 16, pp. 289-326, 2001.
[16] H. Y. Toda and T. Yamamoto, “Statistical inference in vector autoregressions with possibly integrated processes,” Journal of Econometrics, vol. 66, pp. 225-250, 1995.