The impact of public investment and institutional quality on economic growth in Asian countries

Abstract

Public investment, institutional quality, and economic growth are three important factors in promoting the sustainable development of a country. Many studies show that the impact of public investment on economic growth is heterogeneous due to different institutional quality across countries. This article aims to investigate the role of institutional quality in the relationship between public investment and economic growth. Using estimates for panel data of 24 Asian countries for 2002 - 2022, the empirical results show that public investment has a positive relationship with economic growth, however, the interaction term between public investment and Institutional quality has a negative sign. This implies that institutional quality is hindering the positive role of public investment in economic growth in these countries. This result supports the “sanding in the wheels” hypothesis of institutional quality. Governments should enhance accountability and transparency in the planning and implementation of public investment projects to contribute to promoting economic growth. In addition, governments should also improve the project appraisal and evaluation process to ensure that projects are selected and implemented based on economic and social efficiency criteria.