A Study on the Relationship between Institutions and Economic Growth

Abstract: Ningbo Hi-Tech Park is a special zone in Ningbo City of China. It has seen great economic growth after its establishment. The reasons behind the astonishing economic growth have seldom been investigated. Especially, no research has been done to explain the specific economic phenomena in the NHTP from the perspective of institutions. We aim to have more knowledge about the relationship between institutions and economic growth. Further the result of the dissertation will be presented to the NHTP administrative committee as well as some suggestions to improve economic management. Four theories that are the theory of institutional change, the theory of state, the theory of property rights and transaction costs theory are used to explain the establishment of the NHTP with new institutions and how these new institutions motivate investment. The Solow Growth Model and Porter’s Diamond Model were shortly introduced in order to give a picture of the relationship between institutions, investment and economic growth. The research results indicated that all the institutional changes in the NHTP are important to attract investment. The five most important institutions can be grouped into two categories. They are the visible profits including “the favorable tax policies and subsidies from the local government” on one hand, the efficiency of government including “the stability of regulations and policy, the simplified administrative procedure and the high quality service of servant” on the other hand. The favourable tax policies head the list of the five institutions. There are no significant differences among companies in different industries, different sizes and different types