Do institutions and inequality matter for growth? Empirical evidence from ASEAN countries

Abstract

This study investigates the effects of institutional quality and income inequality on economic growth in ten ASEAN countries from 2000 to 2023. Grounded in endogenous growth theory and new institutional economics, the research uses panel data analysis with Pooled OLS, Fixed Effects, and Random Effects models. Following comprehensive diagnostic testing for heteroskedasticity and autocorrelation, the Feasible Generalized Least Squares (FGLS) method is applied for robust estimation. Findings reveal that income inequality significantly reduces GDP per capita growth, while institutional quality positively influences growth outcomes. Industrialization and trade openness act as growth-enhancing factors, whereas expanding the labor force without improving quality may hamper performance. The study highlights the important role of strong institutions and inclusive policies in promoting sustainable economic development. Key policy implications suggest prioritizing human capital, reducing inequality, and enhancing governance structures. Ultimately, this research provides empirical evidence to inform equitable growth strategies in transitional ASEAN economies.