Institutional quality, infrastructure and economic growth: Evidence from RCEP countries

. Large-scale regional trade agreements have led to a gradual increase in the ease of trade development among countries. The role of geographical distance and other location factors on trade development among countries has gradually diminished, while the institutional conditions of different countries have gradually increased their role on trade development among countries. Given the development process of the RCEP agreement, this study uses panel data from 2011-2021 and explores the mechanism of the institutional quality of RCEP countries affecting China's import and export trade with them based on a gravity model. In addition, this study explores the level of infrastructure in mediating the effect of the process. It is found that the institutional quality of RCEP countries has a substantial impact on China's import and export transactions with them. In addition, infrastructure plays a fully mediating effect in the process. Therefore, bilateral trade can be promoted by upgrading the institutional environment, infrastructure development and optimising the business environment.


Introduction
Economic globalization and economic integration have become increasingly prevalent in recent decades, as evidenced in part by a growing number of regional economic cooperation agreements.The Regional Comprehensive Economic Partnership (RCEP), which was officially signed in Vietnam on 15 November 2020, comprises 15 member countries and is the most populous, diverse and dynamic FTA in the world.According to data supplied by the World Bank in 2021, the RCEP region encompasses 3.5 billion people, approximately 47.4% of the world's total population, and has a combined GDP of over US$29 trillion, making it the largest and most influential regional trade free agreement in the world.
With the gradual increase of trade development convenience, the role of geographical distance and other location factors on trade development between countries has gradually diminished, while the role of institutional conditions of different countries on trade development between countries has gradually increased.The institutions that underpin economic growth are endogenous, depending on the collective choices of society 1 , and therefore there are differences in institutional arrangements between countries, with different institutional arrangements leading to different market transaction costs.Institutional quality is an important indicator of institutional differences between China and other countries in the world, so studying the effects and mechanisms of institutional quality on China's trade development will be a practical reference for the exploration of China's foreign trade development path.
Most investigations have considered their effects on international trade from a unilateral perspective of institutional quality or infrastructure, with few studies examining their impact on economic growth in the same system, especially for RCEP countries, whose intermediation and regulation mechanisms have not been systematically studied.To address these gaps in the literature, this study uses a panel dataset of 15 countries included in the RCEP agreement from 2011 to 2021 and explores the relationship between institutional quality and import and export trade using a gravity model regression approach.Furthermore, this study sought to investigate the mechanism of institutional quality on import and export trade via infrastructure intermediaries.

Research hypothesis
Institutions, according to North, "are the restrictions on human design that define human politics, society, and the economy 2 ."Investigate the endogenous linkage between institutional quality and trade development has become an important frontier hotspot of interest in international economics in recent years.A section of scholars has taken the perspective of institutional quality as a notable competitive advantage in international trade, arguing that specialisation and trade in a country does not occur as a result of exogenous endowment differences, but rather from differences in the endogenous institutional quality environment 3 .Another part of the scholars, from the perspective that institutional quality affects the cost of import and export trade and trade flows, argue that an increase in institutional quality reduces the transaction costs and information uncertainty risks of trade thus facilitating the growth of trade volumes 4 .In short, a good institutional environment promotes productive activities in a country, eliminates resource allocation distortions and unsustainable consumption, and further lowers the transaction costs of trading with other countries.
Institutional performance theory suggests that institutions are the fundamental factor influencing economic growth.This is because institutional arrangements facilitate economies of scale, reduce information costs, spread risk, etc., and create incentives to change the way transaction costs are incurred 5 .A good institutional environment provides a ' soft environment' for international trade to take place, and as trade facilitation increases, the level of infrastructure development in each country becomes increasingly important in international trade.We propose the following hypothesis in light of the study presented above.
The term "infrastructure" originated as a technical term in railway construction in the early twentieth century and has now been extended to describe the myriad structures that underpin modern society 6 .It is worth noting that trade costs are not only related to distance, but also to the level of infrastructure.Previous research on how infrastructure affects import and export commerce fall into two categories.One is research on the effect of a single type of infrastructure on import and export trade, and this type of research usually selects multiple variables to analyse for a particular type of infrastructure 7 .The second category is the research related to the relationship between infrastructure and export and import trade 8 .
The given analysis supports the following hypothesis.H1: The quality of institutions has a favorable effect on the growth of import and export commerce.
H2: The quality of institutions has a positive contribution to infrastructure development.
H3: Infrastructure plays a mediating role in the impact of institutional quality on export and import trade.
H4: The strength of the infrastructure has a beneficial effect on import and export trade.

Methodology and research design
Where i is China, j is RCEP country, and t is time.
Model (1) is the total effect of the improvement of the quality of the RCEP Institutional quality on China's import and export trade.Model (2) represents the influence of the enhancement of the RCEP instituional quality on their nation's infrastructure.Taking the quality of the system and the infrastructure of the intermediary variable as the explanatory variables, model (3) can be constructed to check whether the intermediary variable exists.

Data descriptive statistics
Table 1 shows pertinent variable descriptive statistics.To test for multicollinearity amongst explanatory variables, we constructed variance inflation factors (VIFs) for the variables of interest.According to the findings, all of the variables had VIFs that were less than 5, with the mean VIF being 1.78 10 .Therefore, there was no multicollinearity problem between the variables.suggesting that distance has a significant impact on import and export trade.gdpr has a significantly.The coefficient on Broder is not statistically significant, suggesting that whether a trading country borders China or not is not sensitive to import and export trade.

Robustness analysis
This subsection describes a test of the robustness of the results of the benchmark regressions above.First, we check the robustness of the choice of measurement of institutional quality indicators and the institutional quality index was measured using principal component analysis (PCA), before the core model from the previous section was regressed on an individual fixed effects model.The results show in Column (ii) of Table 2.The coefficient on institutional quality is 0.1596, which remains significantly positive at the 1% level and continues to support Hypothesis 1.
Then, the two-stage least squares method is used to analyse the model to test the endogeneity effects.From column (iii), it can be seen that idp<0.1 according to the unidentifiability test, indicating a strong rejection of the original hypothesis of unidentifiability.In terms of the over-identification test, sarganp=0.4532>0.1,indicating that the over-identification test is passed 11 .That is, it shows that the instrumental variables selected for this paper are valid, and then through the results, lnlnst shows a significance at the 0.05 level (p<0.05) and the regression coefficient is 0.4059>0, indicating that the conclusions of this paper are still plausible after the endogeneity correction of the instrumental variables method.

Mediation effect analysis
This paper refers to Baron & enny's test for intermediation effects 12 .The estimation results in Table 3 show model (1), with a coefficient of 0.3301 for lnlnst, indicating the existence and significance of the aggregate effect of the intermediation model.In model (2), the coefficient of lnlnst is 0.3232, which is significant at the 1% level, indicating that an increase in institutional quality significantly contributes to an increase in the level of infrastructure, which further validates hypothesis 2. Further, in model ( 3), the coefficient of the variable lnInfra is 1.3191, which is significantly positive at the 1% level, however, the variable lnlnst does not significant.This indicates that the mediating effect in this paper is fully mediated, i.e. it shows that infrastructure can play a fully mediating role in the relationship between the influence of institutional quality on import and export trade, which also proves hypotheses H3 and H4 of this paper.This may be limited by the sample size of this paper, so subsequent studies can further explore it based on expanding the sample size.

Conclusions and Implications
This study explores the mechanisms by which the institutional quality of RCEP countries affects China's import and export trade, using panel data for the period 2011-2021, and explores the impact of different institutional qualities on trade effects.The intermediary role of infrastructure in import and export trade is then investigated.
Based on the results of the above empirical tests, the following conclusions are drawn from this study.Fisrtly, The RCEP's institutional quality and infrastructure level play an important role in increasing China's import and export trade.In addition, changing the measurement method of comprehensive system quality and the results of 2SLS regression show that infrastructure has an obvious promoting effect on import and export trade.Thirdly, the intermediary mechanism test also demonstrating that institutional quality helps to improve infrastructure level, which is consistent with previous research 13 .
In general, the following policy recommendations are given through theoretical and empirical research: Improve the quality of national systems and environment, and reduce trade disputes.Secondly, develop the level of infrastructure and improve trade facilitation.Thirdly, by establishing an international financial cooperation system, RCEP countries can proactively connect with infrastructure construction projects in countries and regions along the route, thereby providing more sufficient funding for project construction.

Table 1 .
The statistical description of the variables.

Table 3 .
Estimation of mediation effect.