Effects of Fiscal Policy and Institutions on the Economic Growth of Asian Economies: Evidence from Dynamic Panel Data Analysis

Authors

  • Hussin Abdullah College of Arts and Sciences Universiti Utara Malaysia, Malaysia
  • Muzafar Shah Habibullah Faculty of Economics and Management Universiti Putra Malaysia, Malaysia
  • Ahmad Zubaidi Baharumshah Faculty of Economics and Management Universiti Putra Malaysia, Malaysia

DOI:

https://doi.org/10.32890/ijms2009.16.1.9

Keywords:

Economic growth, institutions, aggregate of government expenditure, aggregate of other fiscal variables, dynamic panel cointegration

Abstract

This paper investigates the effects of fiscal policy and institutions on the economic growth of Asian economies through the application of the GMM-SYS approach to dynamic panel estimator as a preference analysis. It examines two different channels through which fiscal policy can affect long-run economic growth in Asia. The first channel is when aggregate government expenditure, aggregate of other fiscal variables, and institution affect the real per capita GDP, and the second channel is to determine the role of institutions on the real per capita GDP. The dynamic panel data result, especially GMM-SYS, established a long-run relationship between fiscal policy, institution, and economic growth. We found positive and statistically significant impact of aggregate of government expenditure and aggregate of other fiscal variables and institution on real per capita GDP. Furthermore, we found that there is a role of institutions on the real per capita GDP.

 

Downloads

Download data is not yet available.

References

Arellano, M., & Bond, S. (1991). Some tests of specific action for panel data: Monte Carlo evidence and an application to employment Equations. Review of Economic Studies, 58, 277-297.

Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-component models. Journal of Econometrics, 68, 29-52.

Baltagi, B.H. (1995). Econometric analysis of panel data. New York, John Wiley and Sons.

Barro, R.J. (1996). Democracy and growth. Journal of Economic Growth, 1(1), 1-27.

Benabou, R. (1996). Heterogeneity, stratification and growth: Macroeconomic implications of community structure and school finance. American Economic Review, 86, 584-609.

Benos, K. (2005). Fiscal policy and economic growth: Empirical evidence from OECD Countries. University of Cyprus, Discussion Paper 2005-01.

Blume L. (1993). The statistical mechanics of strategic interaction. Games and Economic Behaviour, 5, 387-424.

Blundell, R.W., & Bond, S.R. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115-143. IJMS 16 (1), 185-212 (2009) 209

Blundell, R.W., & Bond, S.R. (1999). GMM estimation with persistent panel data: An application to production functions. Cemmap Working Paper, CW99/4. London: Institute for Fiscal Studies.

Borensztein, E., De Gregorio, J., & Lee, J.W. (1998). How does foreign direct investment affect economic growth? Journal of International www.ijms.uum.edu.my Economics, 45, 115–135.

Bonds, S. (2002). Dynamic panel data models: A guide to micro data methods and practice. Portuguese Economic Journal, 1, 141-162.

Brock, W., & Durlauf, S. (2001). Discrete choice with social interactions. Review of Economic Studies, 68, 235-260

Caselli, F., Esquivel, G., & Lefort, F. (1996). Reopening the convergence debate: A new look at cross-country growth empirics. Journal of Economic Growth, 1, 363-389.

Chen, P., & Gupta, R. (2006). An investigation of openness and economic growth using panel estimation. University of Pretoria, Working Paper 2006-22.

Demetriades, P., & Law, S.H. (2006). Finance, institutions and economic development. International Journal of Finanace and Economics, 11, 1-16.

Devarajan, S., Swaroop, V., & Zou, H. (1996).The Composition of public expenditure and economic growth. Journal of Monetary Economics, 37(2), 313-344.

Dogan, E., & Tang, T.C. (2006). Government expenditure and national income: Causality tests for five South East Asian countries. International Business and Economics Research Journal, 5(10), 49-58.

Durlauf. S. (1990). Locally interacting systems, coordination failure, and the behaviour of aggregate activity. Working Paper, Stanford University.

Easterly, W., & Levine, R. (1997). Africa’s growth tragedy: Policies and ethnic divisions. Quarterly Journal of Economics, 112(4), 1203-1250.

Eller, M., Haiss, P., & Steiner, K. (2006). Foreign direct investment in the financial sector and economic growth in Central and Eastern Europe: The crucial role of the efficiency channel. Emerging Market Review 7, 300-319.

Ellison, G. (1993). Learning, local interaction and coordination. Econometrica, 61, 1047-1072.

Gangopadhyay, S., & Chatterji, A. (2005). Economic Globalisation in Asia, Aldershot, Hants, Ashgate Publishing. 210 IJMS 16 (1), 185-212 (2009)

Gerson, P. (1998). The impact of fiscal policy variables on output growth. Working Paper 98/1, International Monetary Fund.

Ghura, D., & Hadjimichael, M.T. (1996). Growth in Sub-Saharan African. IMF Staff Paper, 43, 605-635.

Goldsmith, A.A (1995). Democracy, property rights and economics www.ijms.uum.edu.my growth. The Journal of Development Studies, 32 (2), 157-174.

Gwartney, J., Lawson, R., & Block, W. (1996). Economic freedom of the world: 1975-1995. Vancouver: Fraser Institute.

Heller, P.S. (1997). Fiscal policy management in an open capital regime. Working Paper WP/97/20, Washington, DC,

Hoeffler A.K. (2002). The augmented Solow Model and the African growth debate. Oxford Bulletin of Economics and Statistics, 64(2), 0305-9049.

Holtz-Eakin, D., Newey, W., & Rosen, H.S. (1988). Estimating vector autoregressions with panel data. Econometrica, 56, 1371-1395.

Hsiao, C. (1986). Analysis of panel data. Cambridge: Cambridge University Press.

Islam, N. (1995). Growth empirics: A panel data approach. Quarterly Journal of Economics, 110, 1127-1170.

Knack, S., & Keefer, P. (1995). Institutions and economic performance: Cross-country tests using alternative institutional measures. Economic and Politics, 7(3), 207-227.

Knight, M., Loayza, N., & Villanueva, D. (1993). Testing the neoclassical theory of economic growth, A panel data approach. International Monetary Fund Staff Paper, 40(3).

Law, S.H., & Demetriades, P. (2006). Openness, institutions and financial development. World Economy & Finance Research Programme. Working Paper Series WEF 0012.

Leblang, D.A. (1996). Property rights, democracy and economic growth. Political Research Quarterly 49(1), 5-26.

Levine, R., & Renelt, D. (1992). A Sensitivity analysis of cross-country growth regressions. American Economic Review, 82, 942-963.

Lipset, S. M. (1959). Some social requisites of democracy: Economic development and political legitimacy. American Political Science Review, 53(1), 69-105.

Mankiw, G., Romer, D., & Weil, D. (1992). A contribution to the empirics of economic growth. Quarterly Journal of Economics, 107, 407-437.

Nickell, S. (1981). Biases in dynamic models with fixed effects. Econometrica, 49, 1417-1426. IJMS 16 (1), 185-212 (2009) 211

North, D. (1990). Institutions, institutional change and economic perfromance. Cambridge: Cambridge University Press.

North, D.C., & Thomas, R.P. (1973). The rise of the western world: A new economic history. Cambridge: Cambridge University Press.

Przeworski, A., & Limongi, F. (1997). Modernisation theories and facts. www.ijms.uum.edu.my World Politics, 49,155-183.

Rodrik, D. (1997). TFPG controversies, institutions, and economic performance in East Asia. National Bureau of Economic Research Working Paper 5914.

Rodrik, D., Subramaniam, A., & Trebbi, F. (2002). Institution rule: The primacy of institutions over geography and intergration economic development, NBER Working Paper 9305.

Rosenberg, N., & Birdzell, J.E. (1986). The economic transformation of the industrial world. New York: Basic Books.

Sala-i-Martin, X., & Subramanian, A. (2003). Addressing the natural resource curse: An illustration from Nigeria, NBER Working Paper No. 9804. NBER, Cambridge, MA.

Tang, T.C. (2001). Testing the relationship between government expenditure and national income in Malaysia. ANALISIS, 8(1&2), 37-51.

Tanzi, V., & Zee, H. (1997). Fiscal policy and long-run growth. International Monetary Fund Staff Papers, 44, 65-94.

Zagler, M., & Dürnecker, G. (2003). Fiscal policy and economic growth. Journal of Economic Survey, 17(3), 397-418. 212 IJMS 16 (1), 185-212 (2009)

Downloads

Published

30-06-2009

Issue

Vol. 16 No. 1 (2009): International Journal of Management Studies (IJMS) Vol. 16, No. 1 June 2009

Section

Articles

Research impact

Harvested 2026-09-08
0 citations recorded so far

Counts differ between services because each indexes a different body of literature. None of them is the whole picture.

Identifiers DOI 10.32890/ijms2009.16.1.9

Most read articles by the same author(s)