Open AccessInstitution, Financial Sector, and Economic Growth: Use The Institutions As An Instrument Variable
Author(s) -
Albertus Girik Allo
Publication year - 2016
Publication title -
jurnal ekonomi pembangunan/jurnal ekonomi pembangunan
Language(s) - English
Resource type - Journals
eISSN - 2460-9331
pISSN - 1411-6081
DOI - 10.23917/jep.v17i1.1555
Subject(s) - institution , foreign direct investment , language change , accountability , instrumental variable , economics , control variable , financial institution , quality (philosophy) , finance , business , macroeconomics , political science , econometrics , statistics , art , philosophy , literature , mathematics , epistemology , law
Institution has been investigated having indirect role on economic growth. This paper aims to evaluate whether the quality of institution matters for economic growth. By applying institution as instrumental variable at Foreign Direct Investment (FDI), quality of institution significantly influence economic growth. This study applies two set of data period, namely 1985-2013 and 2000-2013, available online in the World Bank (WB). The first data set, 1985-2013 is used to estimate the role of financial sector on economic growth, focuses on 67 countries. The second data set, 2000-2013 determine the role of institution on financial sector and economic growth by applying 2SLS estimation method. We define institutional variables as set of indicators: Control of Corruption, Political Stability and Absence of Violence, and Voice and Accountability provide declining impact of FDI to economic growth.