Dynamics of governance, gross capital formation, and growth: Evidence from Brazil, Russia, India, China, and South Africa

• Published date: 01 February 2023
• Author: Ashmita Kesar,Kamaiah Bandi,Pabitra Kumar Jena,Miklesh Prasad Yadav
• Date: 01 February 2023
• DOI: http://doi.org/10.1002/pa.2831

RESEARCH ARTICLE

Dynamics of governance, gross capital formation, and growth:

Evidence from Brazil, Russia, India, China, and South Africa

Ashmita Kesar

1

| Kamaiah Bandi

2

| Pabitra Kumar Jena

1

|

Miklesh Prasad Yadav

3

1

School of Economics, Faculty of

Management, Shri Mata Vaishno Devi

University, Katra, Jammu and Kashmir, India

2

School of Economics, University of

Hyderabad, Hyderabad, India

3

ACCF, Amity University, Noida, India

Correspondence

Pabitra Kumar Jena, School of Economics,

Faculty of Management, Shri Mata Vaishno

Devi University, Katra, Jammu and Kashmir,

India.

Email: pabitrakumarjena@gmail.com

This study investigates the impact of governance index and gross fixed capital forma-

tion on the economic growth of Brazil, Russia, India, China and South Africa (BRICS)

using annual data from 2002 to 2019. This study employs Fixed Effect Model, Dris-

coll and Kraay standard error with fixed effect, Fully Modified Ordinary Least Square,

Dynamic Ordinary Least Square (DOLS) and Panel Dumitrescu Hurlin Causality test.

The study has divided the variables into two models where model I includes the

impact of governance index (jointly) on economic growth while model II examines

the impact of governance index on economic growth individually. The findings dem-

onstrate that the governance index, gross fixed capital formation, population, control

of corruption, and governance effectiveness have a positive and significant impact on

economic growth, whereas regulatory quality showed a significant and negative

impact on economic growth. Furthermore, regarding the Panel test, we notice the

presence of unidirectional causality among the constituent variables. Therefore, this

study suggests that the government should encourage economic development in the

BRICS countries and move away from outdated ideas and poor institutional quality in

favor of a new comprehensive reform to achieve excellent governance, population

growth control, labor law changes, and corruption control.

KEYWORDS

countries, economic growth, good governance, gross fixed capital formation, population

1|INTRODUCTION

The economic performances of the BRICS (Brazil, Russia, China, India

and South Africa) countries are significant and show inimitable domi-

nance of the respective regions in the global economy. The story of

BRICS begins with Goldman Sachs' chief economist Jim O0Neill, writ-

ing the paper “Building better global economic BRICs”in 2001, where

he predicted that the five economies would dominate the global econ-

omy by the end of the 21st century. BRICS differs from other devel-

oped economies; they were instituted keeping in mind the low-cost

labor in these nations as they have a huge population, rich natural

resources, and growing GDP. These five nations were established

with the goal of creating greater prospects for long-term economic

growth and cultivating better financial and development support

among the BRICS countries. The conglomeration of BRICS countries

can bring global stability, as the macroeconomic elements are

extremely powerful. The annual GDP growth rate (Table 1) shows that

China is the largest economy with 1.40 billion people followed by

India, the second largest economy among the BRICS countries.

In the early 2000's the rapid growth of China and India enhanced

the demand for primary commodities and many developing countries

benefited from it, including Brazil and South Africa. Russia, Brazil and

South Africa have a low contribution to the annual GDP growth rate.

Over the past decades, it is evident that economic growths of the

BRICS countries have come down. China's growth rate has been hit

hard due to trade war and this has eventually affected the growth

rate, but in 2021 China's growth rate was expected to rise to 9.2%,

which is the highest among the BRICS nations. India is the second

Received: 20 September 2021 Revised: 12 May 2022 Accepted: 15 June 2022

DOI: 10.1002/pa.2831

J Public Affairs. 2023;23:e2831. wileyonlinelibrary.com/journal/pa © 2022 John Wiley & Sons Ltd. 1of14

https://doi.org/10.1002/pa.2831