Institutions, Government, and Development
Creators: name: Ryu, Taehyun
Publisher: name: The Australian National University
Year: 2021

description: After an introductory chapter on growth, development, institutions, and transition, this thesis presents three chapters on how institutions, government's policy priorities and policy responses affect economic development. Chapter II explores how various institutions are related to each other, what hierarchies they have, and how they influence each other. Recent studies have shown that institutions are a key determinant of economic development. However, there is no consensus on how different types of institutions are interrelated and the way in which they affect economic performance. The hierarchy of institutions hypothesis is that political institutions provide a foundation for economic institutions, which in turn have a direct impact on economic performance. This chapter uses panel data from European transition countries from 1991-2018 to test this hypothesis. The fixed effects estimates indicate that economic institutions have impacted economic performance, and the two-stage least squares analysis suggests that political institutions have indirect effects on growth through economic institutions. This study confirms that the hierarchy of institutions hypothesis holds, and the results are robust to additional economic determinants and alternative dependent variables. Chapter III investigates the determinants of changes in the industrial structure from the experiences of transition countries. The change in the industrial structure is an important measure that implicitly shows the economic situation of a country, such as production and employment structure, degree of development, and development strategy. The transition processes in China and Russia, which are the subjects of this study, show a striking contrast in terms of the political environment, initial industrial structure, transition policy, support of the people, and economic performance. Among these, the most significant difference between the two countries and the biggest challenge to overcome at the start of the transition was the structural distortions that have long accumulated under the planned economy. This chapter uses panel data from 31 Chinese provinces over the period 1978-2018 and 15 former Soviet Union countries over the period 1991-2018 to compare the changes in industrial structure between China and FSU countries after each transition. The estimation results confirm that there is an inverse U-shaped relationship between the production and employment share in the secondary sector and income levels in Chinese provinces, which supports the three-sector hypothesis and de-industrialisation model. Besides, the empirical evidence indicates that sector-specific productivity is an essential factor in the sector's share of production and employment. Chapter IV studies the government's policy to cope with the recession and crisis and empirically examines the relationship between public debt and economic growth in a panel of advanced and emerging countries. Based on data since 2000, this present study shows that the increase in government debt is negatively associated with the growth rate regardless of the level of debt-to-GDP ratio and inflation. The estimates of the fixed-effects panel threshold model and the dynamic panel threshold model find that the negative effect of public debt growth on the GDP growth becomes greater when the debt ratio exceeds thresholds, while the negative impact is smaller in the upper regime of inflation rate thresholds. An interesting finding is that these negative effects turn into positive in the medium-term, then into insignificant effects in the long term. In the current situation where government debt has risen sharply in each country to cope with the COVID-19 pandemic, this study supports the view that the increase in government debt is not a policy for short-term economic growth but rather an inevitable measure to stabilise the economy for the longer-term. The thesis concludes with a short chapter which provides an overview.