Does Good Governance Drive Economic Growth in India? Evidence from the ARDL Bounds Testing Approach

Abstract

This study examines the influence of good governance on economic growth in India using annual data from 1996 to 2022. Economic growth, measured through per capita GDP, is analysed in relation to governance indicators: control of corruption, political stability and voice and accountability, along with key control variables such as the Human Development Index, government consumption, trade openness, foreign direct investment and gross fixed capital formation. Employing the Autoregressive Distributed Lag model with supporting robustness checks, the findings confirm a significant long-run relationship between governance and growth. Governance indicators and human development emerge as strong drivers of growth, while government consumption and trade openness also contribute positively. By contrast, foreign direct investment is found to have a negative and insignificant effect and gross fixed capital formation shows a negative but significant impact, reflecting possible structural or institutional challenges in translating these factors into growth benefits. These results highlight the importance of governance reforms and sustained investment in human development as essential for India’s long-term economic progress, offering valuable insights for policymakers seeking to strengthen institutions and promote inclusive growth.