Economic Uncertainty, Institutional Quality, and Economic Growth: A Conceptual Perspective
DOI:
https://doi.org/10.37134/Keywords:
Natural aggregate demand, Economic growth, Economic uncertaintyAbstract
Economic uncertainty has become a persistent and structurally significant feature of the global macroeconomic environment, influencing economic behavior beyond short-term cyclical fluctuations. This paper develops a conceptual framework that examines the relationship between economic uncertainty and economic growth, with particular emphasis on the moderating role of institutional quality. Drawing on a Keynesian demand perspective, economic uncertainty is conceptualized as a factor that weakens expectations, delays investment, and dampens aggregate demand, thereby constraining output growth. However, the magnitude and persistence of these effects are not uniform across economies. Differences in institutional quality, reflected in governance effectiveness, regulatory stability, policy credibility, and rule enforcement, shape how uncertainty is transmitted to real economic activity. Strong institutions mitigate uncertainty-induced contractions by stabilizing expectations, improving the transmission of macroeconomic policies, and sustaining investor confidence, whereas weak institutions amplify uncertainty shocks and weaken growth resilience. The framework further incorporates interest rates and exchange rates as key monetary and external channels through which uncertainty influences growth dynamics in open economies. By integrating economic uncertainty and institutional quality into a unified growth framework, this paper contributes to the structural macroeconomic literature and provides a coherent foundation for future empirical research.
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Copyright (c) 2026 Lyu Mengran, Pei-Tha Gan, Shahrun Nizam, Azila Abdul Razak, Fatimah Salwa Abd. Hadi
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