(Luận văn) the impact of institutions on economic growth and income in southeast asian countries

t to ng hi UNIVERSITY OF ECONOMICS HO CHI MINH CITY VIETNAM ERASMUS UNVERSITY ROTTERDAM INSTITUTE OF SOCIAL STUDIE THE NETHERLANDS ep w n VIETNAM – THE NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS lo ad ju y th yi pl ua al n THE IMPACT OF INSTITUTIONS ON ECONOMIC GROWTH AND INCOME IN SOUTHEAST ASIAN COUNTRIES n va ll fu oi m at nh z z BY k jm ht vb PHAN CHANH PHONG om l.c gm an Lu MASTER OF ARTS IN DEVELOPMENT ECONOMICS n va ey t re th HO CHI MINH CITY, DECEMBER 2015 t to UNIVERSITY OF ECONOMICS STUDIES HO CHIMINH CITY VIETNAM INSTITUTE OF SOCIAL THE HAGUE THE NETHERLANDS ng hi ep VIETNAM - NETHERLANDS PROGRAMME FOR M.A IN DEVELOPMENT ECONOMICS w n lo ad ju y th yi pl n ua al THE IMPACT OF INSTITUTIONS ON ECONOMIC GROWTH AND INCOME IN SOUTHEAST ASIAN COUNTRIES n va fu ll A thesis submitted in partial fulfilment of the requirements for the degree of m oi MASTER OF ARTS IN DEVELOPMENT ECONOMICS at nh z z k PHAN CHAHH PHONG jm ht vb By om l.c gm n va DR CAO HAO THI an Lu Academic Supervisor: ey t re HO CHI MINH CITY, DECEMBER 2015 DECLARATION t to I declare that: “The Impact of Institutions on Economic Growth and Income in Southeast Asian Countries” is my own work; it has not been submitted for any degree at other universities ng hi ep I confirm that I have made all possible effort and applied all knowledge for finishing this thesis to the best of my ability w n Ho Chi Minh City, December 2015 lo ad Phan Chanh Phong ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re i ACKNOWLEDGEMENTS t to I would like to express my deepest gratitude to my academic supervisor, Assoc Prof PhD Cao Hao Thi, for his helpful comments, guidance and regular feedbacks in this thesis ng hi ep I am also grateful to Prof Dr Nguyen Trong Hoai and Dr Pham Khanh Nam for their great advice when this thesis is just in form of ideas w I would like to thank all lecturers for the knowledge and lessons they gave me and their support during the time I studied at the programme n lo ad Last but not least, my sincerest thanks are for my family, especially my mom Without their frequent encouragement as well as spiritual support, I would not have been able to complete this thesis ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re ii ABSTRACT t to ng hi ep The role of institutions has generated considerable interest among researchers and practitioners recently, with the various result approaches and proposals The studies often investigate the direct impact of institutions on growth; moreover, there are few researches on this topic in Southeast Asian area and Vietnam This thesis investigates both direct and indirect impact of institutions on economic growth and income in the context of Southeast Asian countries over the period 2000-2013 by using six measures of institutional indicators, all of which are developed by the World Bank in 2014 The model is estimated using an Ordinary Least Squares, a Fixed Effect as well as a Random Effect estimation strategy Estimation results show that the direct impact of the institutions on growth is insignificant; however, the direct impact on the income and indirect impact on growth through trade policies are high significant In addition, the results also show that the influence of corruption on income is stronger in low-income countries From that, respective policies are suggested to stimulate growth and income in Southeast Asian countries w n lo ad ju y th yi pl Effect n ua al Keywords: Institutions, Economic Growth, Income, OLS, Fixed Effect, Random n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re iii ABBREVIATIONS t to ng hi ep AEC Asean Economic Community COC Control of Corruption FE Fixed Effects GE Government Effectiveness w International Country Risk Institutional Guide n ICRG lo Provincial Competitiveness Index yi Political Stability and Absence of Violence/Terrorism pl PSNV Ordinary Least Squares ju PCI y th OLS New Institutional Economics ad NIE al Random Effects RL Rule of Law RQ Regulatory Quality VAA Voice and Accountability n ua RE n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re iv CONTENTS DECLARATION i t to ACKNOWLEDGEMENTS ii ng hi ep ABSTRACT iii ABBREVIATIONS iv LIST OF TABLES w n LIST OF FIGURES viii ix lo ad Chapter INTRODUCTION y th 1.1 Problem statement ju yi 1.2 Research objectives pl 1.3 Research questions al n ua 1.4 Contribution of the research va 1.5 Structure of the research n Chapter LITERATURE REVIEW fu ll 2.1 Theoretical literature m oi 2.1.1 Definition of institutions nh 2.1.2 Informal and formal institutions at z 2.1.3 The New Institutional Economics z ht vb 2.1.4 How institutions influences economic jm 2.1.5 Solow model k 2.1.6 Measuring institution 10 gm 2.2 Empirical review 11 l.c Chapter RESEARCH METHODOLOGY 15 om 3.1 Analytical framework 15 an Lu 3.1.1 Model of institutional impact on growth 15 3.1.3 Model of indirect impact of institutions on economic performance 19 v ey 3.2.1 Data source 19 t re 3.2 Data and Variables 19 n va 3.1.2 Model of institutional impact of income 17 3.2.2 Variable measurement 19 3.3 Estimation method and model validation 29 t to 3.3.1 Heteroscedastic testing 29 ng hi 3.3.2 White Heteroscedasticity –Consistent Stand Errors or Robust Standard Errors 29 ep 3.3.3 Breusch-Pagan LM test for Random Effects 29 3.3.4 Hausman test for Fixed versus Random Effects model 29 w n 3.3.5 Omission of relevant variables 30 lo ad Chapter ANALYSIS RESULTS 32 y th 4.1 Overall explanation and hypothesis testing 32 ju yi 4.1.1 Statistical test of model overall significance 32 pl 4.1.2 Heteroscedastic testing 33 al n ua 4.1.3 Model Testing 34 va 4.2 Impact of institutions on economic growth 35 n 4.2.1 Voice and Accountability, Political Stability and Absence of Violence/Terrorism 36 ll fu m oi 4.2.2 Government Effectiveness, Regulation Quality 39 at nh 4.2.3 Rule of Law, Control of Corruption 41 4.2.4 Summary results of growth 45 z z vb 4.3 Impact of institutions on income 46 jm ht 4.3.1 Voice and Accountability, Political Stability and Absence of Violence/Terrorism 46 4.3.2 Government Effectiveness, Regulation Quality 50 k l.c gm 4.3.3 Rule of Law, Control of Corruption 53 4.3.4 Summary results of income 56 om Chapter CONCLUSIONS 58 an Lu 5.1 Conclusions 58 5.2 Policy implications 59 vi ey 5.3 Limitations and further researches 60 t re 5.2.2 Policies for income 59 n va 5.2.1 Policies for economic growth 59 t to ng hi REFERENCES 61 APPENDIX A HETEROSCEDASTIC TEST 65 APPENDIX B BREUSCH-PAGAN LM TEST FOR RANDOM EFFECTS 71 APPENDIX C HAUSMAN TEST FOR FIXED VERSUS RANDOM EFFECTS MODEL 75 ep w n lo ad ju y th yi pl n ua al n va ll fu oi m at nh z z k jm ht vb om l.c gm an Lu n va ey t re vii LIST OF TABLES t to Table 3.1 Explaining the variables in growth model 16 ng Table 3.2 Explaining the variables in income model 18 hi ep Table 3.3 Institutional variables from World Bank .21 Table 3.4 Summary statistics of key variables 21 w n Table 3.5 Between and within variations of key variables 23 lo ad Table 3.6 Average of the institutional indicators of Southeast Asian countries in 2000-2013 27 ju y th Table 4.1 Hypothesis testing of the overall significance of regression 32 Table 4.2 Heteroscedasticity test .33 yi pl Table 4.3 Breusch-Pagan LM test for Random Effects 35 al ua Table 4.4 Hausman test for Fixed versus Random Effects model 35 n Table 4.5 Impact of institutions on growth - Voice and Accountability .37 va n Table 4.6 Impact of institutions on growth- Political Stability and Absence of Violence/Terrorism.37 fu ll Table 4.7 Impact of institutions on growth - Government Effectiveness 39 m oi Table 4.8 Impact of institutions on growth - Regulation Quality .41 at nh Table 4.9 Impact of institutions on growth - Rule of Law 42 z Table 4.10 Impact of institutions on growth - Control of Corruption 43 z vb Table 4.11 Summary of impact of institutions on growth 45 jm ht Table 4.12 Effect of institutions on income - Voice and Accountability .48 k Table 4.13 Effect of institutions on income - Political Stability and Absence of Violence/Terrorism49 gm Table 4.14 Effect of institutions on income - Government Effectiveness 51 l.c Table 4.15 Effect of institutions on income - Regulation Quality .52 om Table 4.16 Effect of institutions on income - Rule of Law 54 an Lu Table 4.17 Effect of institutions on income - Control of Corruption 55 Table 4.18 Summary of impact of institutions on income 56 n va ey t re viii REFERENCES t to Acemoglu, D., Johnson, S., & Robinson, J A (2001) The Colonial Origins of Comparative Development: An Empirical Investigation American Economic Review, 91(5), 1369-1401 ng hi ep Aghion, P., Bloom, N., Blundell, R., Griffith, R., Howitt, P (2005) Competition and innovation: An inverted-U relationship Quarterly Journal of Economics, 120 (2), 701728 w Akỗay, S (2006) Corruption and human development Cato Journal, 26, 29 n lo Alchian, A A (1950) 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