STRUCTURAL CONSTRAINTS AND ECONOMIC GROWTH: AN INSTITUTIONAL PERSPECTIVE ON DEVELOPING ECONOMIES

Abstract

This literature review examines the complex relationship between structural constraints, institutional quality, and long-run economic growth in developing economies. Drawing on neoclassical, endogenous growth theory, and institutional economics frameworks, the review synthesizes empirical evidence on how institutional quality shapes economic performance both directly and through moderating effects on other growth determinants. The analysis reveals that institutions play a critical role in determining whether developing economies can overcome structural constraints related to infrastructure deficits, human capital limitations, financial market inefficiencies, and market imperfections. Evidence indicates significant threshold effects, whereby the growth-enhancing impacts of foreign direct investment, trade openness, and financial development are conditional upon achieving minimum institutional quality standards. Regional heterogeneity is pronounced, with institutional effects varying substantially across Sub-Saharan Africa, Asia, Latin America, and the Middle East. The review identifies policy-relevant insights emphasizing the complementarity between institutional reforms and investments in physical and human capital. By integrating theoretical perspectives with empirical findings across multiple contexts, this study contributes to understanding the multi-dimensional pathways through which institutions influence economic development and offers directions for future research on context-specific institutional reforms tailored to varying development stages and regional characteristics.