The Shaping Mechanism of Institutional Quality Differences on the Long-Term Economic Growth Path and Its Theoretical Explanation

Abstract

This paper explores how the long-term economic growth paths of countries are shaped by differences in institutional quality and the underlying theoretical mechanisms, and constructs a comprehensive analytical framework for the impact of institutional quality on economic growth after reviewing relevant literature in institutional economics, new growth theory, and comparative institutional analysis. The research shows that many aspects such as property rights protection, transaction costs, technological innovation incentives, factor accumulation and allocation efficiency are the ways in which institutional quality affects the economic growth path, among which high-quality institutions can reduce uncertainty, provide reasonable incentive structures to promote the effective operation of markets, support innovation activities to achieve sustainable growth, On the contrary, low-quality institutions may lead to rent-seeking, misallocation of resources and thus fall into a growth trap. Further analysis reveals that institutional evolution is path-dependent and that both historical initial conditions and cultural factors act on the direction of institutional change, resulting in a diverse growth trajectory. This study presents a theory of institutional co-evolution from the perspectives of new institutional economics, endogenous growth theory, and comparative political economy, which explains the dynamic interaction between institutional bundles and economic performance, as well as the situation where differences in institutional quality affect innovation, human capital accumulation, and resource allocation efficiency, resulting in sustained development differences among countries. This theoretical framework opens up a new perspective for understanding long-term economic growth disparities and offers policy implications for institutional reform in developing countries.