Transitions between Growth Episodes: Do Institutions Matter and Do Some Institutions Matter More?

ESID Working Paper 99. Manchester: Effective States and Inclusive Development Research Centre, The University of Manchester (April, 2018)

22 Pages Posted: 26 Apr 2018

See all articles by Selim Raihan

Selim Raihan

University of Dhaka

Sabyasachi Kar

University of Delhi - Institute of Economic Growth (IEG)

Kunal Sen

University of Manchester

Date Written: April 9, 2018

Abstract

This paper examines the institutional and political determinants of the timing of growth episodes. We extend the earlier literature on the determinants of the onset of growth accelerations and decelerations by providing a more generalised approach to understanding growth episode transitions. We differentiate between six types of growth episodes – from growth collapses (where the episode specific growth rate, g, is -2 per year), to negative growth (g between -2 and 0), stagnation (g between 0 and 2), stable growth (g between 2 and 4), moderate growth (g between 4 and 6), and rapid growth (g over 6). Using multinomial logit models, in the context of a panel dataset of 125 countries from 1984 to 2010, we examine the likelihood of switching from one growth episode to another growth episode. We find that though bureaucracy quality has a positive effect while switching from negative growth episodes to positive growth episodes, it does not matter in most of the cases of switching from stable or moderate positive growth episodes to rapid positive growth episodes. Both contract viability and democratisation can explain the switching from negative growth episodes to positive growth episodes. Contract viability and democracy can also explain the movements from lower positive growth episodes to higher positive growth episodes. However, while contract viability is important for moving from stable or moderate positive growth episodes to rapid growth episodes, democracy is not important in explaining such switches. This suggests that while better economic and political institutions matter in taking a country from growth collapses to stable growth, economic institutions matter more than the political institutions for the transition from stable growth to rapid growth.

Keywords: economic growth, growth episodes, institutions, bureaucracy quality, contract viability, democracy, multinomial logit model, panel data

Suggested Citation

Raihan, Selim and Kar, Sabyasachi and Sen, Kunal, Transitions between Growth Episodes: Do Institutions Matter and Do Some Institutions Matter More? (April 9, 2018). ESID Working Paper 99. Manchester: Effective States and Inclusive Development Research Centre, The University of Manchester (April, 2018). Available at SSRN: https://ssrn.com/abstract=3160077 or http://dx.doi.org/10.2139/ssrn.3160077

Selim Raihan (Contact Author)

University of Dhaka ( email )

University of Dhaka
Ramna, Dhaka, 1000
Bangladesh

Sabyasachi Kar

University of Delhi - Institute of Economic Growth (IEG) ( email )

Delhi, 110007
India

Kunal Sen

University of Manchester ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom

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