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Institutional Quality and Macrofinancial Resilience in Asia

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  • John Beirne

    (Asian Development Bank Institute)

  • Pradeep Panthi

    (Asian Development Bank Institute)

Abstract

We examine the effect of institutions on macrofinancial resilience in Asia. Focusing on a panel of 12 Asian economies from the first quarter of 1996 to the fourth quarter of 2020, we find that institutions for economies with high levels of institutional quality support the resilience of real GDP per capita, FDI, and portfolio equity during periods of elevated financial stress. Our results also suggest portfolio rebalancing effects at play in crisis times. For economies with low levels of institutional quality, institutions may help to stabilize portfolio debt during crisis times, although the magnitude of the effects are small. As well as pointing toward resilience thresholds in institutional quality, we provide insights on critical subcomponents of overall institutional quality, notably rule of law, political stability, and regulatory quality. The findings help to inform the direction of policy efforts toward strengthening institutional capacity, and structural reforms for enhancing economic development and resilience to shocks.

Suggested Citation

  • John Beirne & Pradeep Panthi, 2022. "Institutional Quality and Macrofinancial Resilience in Asia," ADBI Working Papers 1336, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:1336
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    Cited by:

    1. Tan, Sook-Rei & Yeap, Xiu Wei & Li, Changtai, 2024. "International financial integration and financial stress of emerging market economies: The role of institutional quality," Emerging Markets Review, Elsevier, vol. 63(C).

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    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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