Does Institutions Matter for Economic Development? Evidence for ASEAN Selected Countries

The theoretical and applied issues of the relationship between institutions and economic growth have thoroughly been examined in ASEAN countries. This study revisits the issue and tests the role of institutions in the economic growth using the World Governance Indicators (WGI) and uses a new method to examine the impact of the various institutions on the economic growth. We used dynamic panel using GMM panel data for 10 ASEAN countries over the period 1996–2014. The empirical analysis confirms a positive relationship between a composite WGI and the economic growth in the selected ASEAN countries. So, there is a positive impact of Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption on economic growth in the selected countries. Other control variables showed that human capital, and physical capital have a significant influence on the growth as the theory predicts. This study also found that there is a bidirectional causality effect between the both variables.