The Role Of The State In Achieving High Rate Of Economic Growth. Experiences Of India And Pakistan: The Comparison

The influence of state institutions on economic growth dynamics is an important subject of analysis in economics literature. The purpose of this article is to compare determinants of growth rate in India and Pakistan in the years 1988 to 2012. The subject of analysis will be factors associated both with neoclassical growth model (capital, labor) and with institutional economy (political and economic institutions). Nowadays in India and Pakistan we can observe relatively high rates of economic growth. However, this states differ significantly in economic conditions that are defined by institutions. The sources of data used in the analysis are World Bank’s, Central Statistics Office of India’s databases as well as Global Market Information and CEIC Databases. Because of the aim and character of the article methods of logic analysis were employed. Econometric methods such as Granger causality test and impulseresponse analysis were also applied. Comparing values of growth rates in considered countries we can claim that Indian institutions are more effective in favoring high growth dynamics. On the ground of the examination of determinants indicated by neoclassical economists (e.g. labor force, human capital and volume of investments) we might claim that better conditions for economic growth are in Pakistan. Nevertheless, analysis of factors associated either to political (e.g. governance quality on the base of Worldwide Governance Indicators) or to economic (e.g. economic freedom based on indicators by Freedom House) institutions indicates that India is the state which more efficiently affects economic growth dynamics. Regarding the fact that growth rates in India were generally higher over the period considered, we can assume that great amount of economic freedom and good governance quality were the factors that decided about higher growth rate in India compared to Pakistan.