Role of institutions on export led growth: Dynamic panel data analysis

Foreign trade, and especially exports, is an essential factor on the economic growth of countries. In today's globalizing world, countries implement various foreign trade policies for the purpose of encouraging exports to increase economic growth. However, despite the implementation of similar policies, it appears that the level of income generated by exports and the effect of exports on economic growth differ between countries. The main starting point of this study is that the institutional structures of the countries may be effective in the emergence of these differences. In this context, it is expected that institutions will further strengthen the relationship between exports and economic growth in countries which have stronger institutional structure. This study aims to contribute to literature and policy makers by examining the role of institutional factors on export led economic growth. Five different dynamic panel data models are estimated for the 42 developing and 33 developed countries by using the GMM method for the period of 1985-2014 within the study context. Findings show that the export led growth hypothesis is valid in both developing and developed countries. According to this finding, there is a significant and positive relationship between export and economic growth. It is also found that institutional factors further strengthened this positive relationship between exports and economic growth for both groups of countries. Finally, in the analysis findings performed with the institutional subcomponents, it was found that the religious de-conflict in both groups of countries is more important in the export led growth. Beside, it was found that to give importance to institutional regulations in the fields of law and order and bureaucratic quality specific to developing countries is important in terms of export led growth.