The effect of regulatory performance on economic growth

Abstract

The tendency to fall into a middle-income trap position due to weak regulatory performance remains a longstanding issue faced by the majority of upper-middle-income economies (UMIE). Although regulatory performance is considered as one of the most vital factors that determine the financial progression and stability of a nation, this variable is often overlooked in previous economic growth literature. Hence, this study aims to examine the important role of regulatory performance in accelerating the economic growth of 30 upper-middle-income economies countries within the timeframe of 2000 to 2018. Using the two-step system Generalised Method of Moments (GMM), the findings reported that regulatory performance is indeed essential in stimulating economic growth. The results also indicated that lengthy procedures and waiting period involved in opening and registering new businesses are a common predicament for start-up firms. This proves to be a demotivating factor for new investors, indirectly slowing down the economic performance of the UMIE. As this study leads to various policy implications, future studies can consider advancing research in this area by further examining the link between regulatory performances and economic growth for individual countries based on a time series analysis.