Do institutions affect economic growth? An empirical analysis of selected South Asian countries

Abstract

In this article we estimate the role of institutions in conjunction with physical capital stock, human capital stock, openness and liberalisation in economic growth of the four major economies of South Asia. We apply both time series and panel data analysis for estimation. The time series analysis shows that physical capital stock positively influences economic growth of the four major South Asian countries. The influence of the other factors varies across the countries in the long run. When we control for institutional quality, the speed of adjustment diminishes for every country. The panel data analysis shows that voice and accountability and regulation impart positive and significant influence while government effectiveness and rule of law imparts negative significant influence on PCGDP of the countries. The study shows the need for higher investment in human capital, physical capital. Additionally, the quality of institutions in South Asia needs attention, to sustain growth in future.