The Causal Relationship Between Institutions and Economic Growth : An Empirical Investigation for Pakistan Economy

This paper investigates relationship between institutional quality and economic performance in Pakistan using the Johansen-Juselius cointegration techniqueand the Granger causality test. The study results indicate that Institutions and growth are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between Institutions and growth is uni-directional. However, there is no short run causality from Institutions to growth and vice versa. Therefore, as a policy implication that institutional quality may cause tothe sustainable increase in country's income in the long run, and success of any policy could be influenced by the soundness of institutions