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ECONOMIC GROWTH WITH ENDOGENOUS ECONOMIC INSTITUTIONS

Published online by Cambridge University Press:  15 November 2018

Zhao Li
Affiliation:
Tongji University
Yujing Chu*
Affiliation:
Shanghai Normal University
Tianruo Gao
Affiliation:
University of York
*
Address correspondence to: Yujing Chu, Tourism College, Shanghai Normal University, Room 501, 100 Guilin Road, Shanghai 200234, China. e-mail: chuyujing@163.com

Abstract

Unlike most existing studies on the endogenous institutions, literature on theoretical growth has traditionally considered institutions as exogenous. In this paper, a learn-by-doing-based growth model is adopted and integrated with endogenous institutions to study how economic agents’ incentives engage in institutional improvements or exploit institutional imperfections. From maximization of identical agent utility, the economic growth model includes capital, labor, technology, and institutions. The study is to analyze the effect of institutions on the stability of equilibrium, balanced economic growth path, and convergence rate in the process of economic growth. It is concluded that, firstly, improving institutions is a decisive factor for China’s high economic growth rate for the past years; secondly, improving institutions can increase the capital stock per unit of effective labor in steady state; thirdly, imperfect institutions can explain income difference among countries; and finally, technology plays a key role only under the conditions adapting to institutions.

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Articles
Copyright
© Cambridge University Press 2018

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Footnotes

We are grateful to anonymous referee and the editor for insightful comments on previous versions which substantially improved this article. This work was supported by the Social Science Foundation of Shanghai under grant no. 2017BJL003. The usual disclaimer applies.

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