Abstract:
The discipline of International Political Economy (IPE) aspires to provide insight
into its complex surroundings and their intertwined interactions across various
levels of nations, markets, and international entities. In the contemporary world,
the modern economic system is mostly the result of economic liberalism, which
promotes the state's limited role in its interaction with the market. Because of the
shortcomings and side effects of the free-market system, institutionalism has
gained traction. It advocates for robust property rights, low transaction costs, and
appropriate contract enforcement. The majority of research on institutions and
the finance-growth link in neoclassical settings is contradictory and ambiguous.
This study explores the institutional spillover on financial development and
economic growth through different levels of structures. The variables of good
governance indicators for institutions and financial development index to
measure financial development and per capita GDP for economic growth are
mainly used in this study. In order to investigate the geographical spillover of the
institutions on the finance-growth nexus, the first aim is investigated by
employing spatial econometric modeling to analyze panel data of 152 countries
for the years 2002–2019. The findings suggest that the financial growth and
institutions of neighboring nations have an opposite geographical spillover effect
on the home country. The second aim is achieved by employing global panel data
from 181 countries for the years 2002–2018 using simultaneous equation
modeling. The financial market and its moderation of economic growth indicate
a spillover behavior. The third aim is explored by the analysis in the Sri Lankan
context using the data from 1990–2019 by time-series modeling and provincial
data from 2013–2019 for nine provinces using spatial econometrics, including
inclusive growth to compare the institutional impact on economic growth. Results
find that the mediator impact of institutions on inclusive growth and moderation
impact of institutions with financial development on economic growth is adverse.
Furthermore, fiscal decentralization did not significantly affect inclusive
development or economic growth, according to provincial studies. The findings
indicated that international monitoring and governance systems have not
succeeded regarding individual nations and that global governance is a positive
sum game. Local institutions might be revitalized by strong governance and
connections to the global governance framework, hence preventing institutional
collapse at the state level.
