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Killing the Goose that Lays the Golden Egg: a Time-Series Analysis of Institutional Change and Economic Growth in Hong Kong

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Author Info

  • Nicolaas Groenewold

    ()
    (Department of Economics, The University of Western Australia)

  • Sam Hak Kan Tang

    ()
    (Department of Economics, The University of Western Australia)

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    Abstract

    This paper examines how the rule of law and democratic accountability have affected Hong Kong’s GDP growth rate in the past 20 years. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from ARDL bounds tests show a strong positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to controlling for the effects of investment and the Asian financial crisis in 1997. Our results suggest that the deterioration in democratic accountability following the handover in 1997 has come at the expense of a considerable decline in economic growth, and controverts popular arguments in Hong Kong that improving democratic accountability will harm economic growth.

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    File URL: http://www.biz.uwa.edu.au/home/research/discussionworking_papers/economics/2005?f=148855
    File Function: First version, 2005
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    Bibliographic Info

    Paper provided by The University of Western Australia, Department of Economics in its series Economics Discussion / Working Papers with number 05-06.

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    Length: 30 pages
    Date of creation: 2005
    Date of revision:
    Handle: RePEc:uwa:wpaper:05-06

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    Related research

    Keywords: Institutions; growth; democratic accountability; rule of law; Hong Kong;

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    1. Eric Zivot & Donald W.K. Andrews, 1990. "Further Evidence on the Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Cowles Foundation Discussion Papers 944, Cowles Foundation for Research in Economics, Yale University.
    2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    3. Barro, Robert J, 1996. " Democracy and Growth," Journal of Economic Growth, Springer, vol. 1(1), pages 1-27, March.
    4. Tavares, Jose & Wacziarg, Romain, 2001. "How democracy affects growth," European Economic Review, Elsevier, vol. 45(8), pages 1341-1378, August.
    5. Dani Rodrik, 2000. "Institutions for High-Quality Growth: What They are and How to Acquire Them," NBER Working Papers 7540, National Bureau of Economic Research, Inc.
    6. Daron Acemoglu & Simon Johnson & James Robinson & Yunyong Thaicharoen, 2002. "Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," NBER Working Papers 9124, National Bureau of Economic Research, Inc.
    7. John F. Helliwell, 1994. "Empirical Linkages Between Democracy and Economic Growth," NBER Working Papers 4066, National Bureau of Economic Research, Inc.
    8. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
    9. Atkins, Frank J. & Coe, Patrick J., 2002. "An ARDL bounds test of the long-run Fisher effect in the United States and Canada," Journal of Macroeconomics, Elsevier, vol. 24(2), pages 255-266, June.
    10. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    11. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
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