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Rule of law, democracy, openness, and income

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  • Roberto Rigobon
  • Dani Rodrik

Abstract

We estimate the interrelationships among economic institutions, political institutions, openness, and income levels, using identification through heteroskedasticity (IH). We split our cross-national dataset into two sub-samples: (i) colonies versus non-colonies; and (ii) continents aligned on an East-West versus those aligned on a North-South axis. We exploit the difference in the structural variances in these two sub-samples to gain identification. We find that democracy and the rule of law are both good for economic performance, but the latter has a much stronger impact on incomes. Openness (trade/GDP) has a negative impact on income levels and democracy, but a positive effect on rule of law. Higher income produces greater openness and better institutions, but these effects are not very strong. Rule of law and democracy tend to be mutually reinforcing. Copyright (c) The European Bank for Reconstruction and Development, 2005.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 13 (2005)
Issue (Month): 3 (07)
Pages: 533-564

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Handle: RePEc:bla:etrans:v:13:y:2005:i:3:p:533-564

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Cited by:
  1. Duha T. Altindag & Junyue Xu, . "The Impact of Institutions and Development on Happiness," Departmental Working Papers, Department of Economics, Louisiana State University 2009-17, Department of Economics, Louisiana State University.
  2. R. L. Bruno, 2008. "Rule of Law, Institutional Quality and Information," Working Papers 634, Dipartimento Scienze Economiche, Universita' di Bologna.
  3. Richard Bluhm & Adam Szirmai & UNICEF Innocenti Research Centre, 2011. "Institutions, Inequality and Growth: A review of theory and evidence on the institutional determinants of growth and inequality," Innocenti Working Papers inwopa634, UNICEF Innocenti Research Centre.
  4. Toke S. Aidt & Martin Gassebner, 2010. "Do Autocratic States Trade Less?," World Bank Economic Review, World Bank Group, World Bank Group, vol. 24(1), pages 38-76, January.
  5. Uwe Sunde, 2006. "Wirtschaftliche Entwicklung und Demokratie - Ist Demokratie ein Wohlstandsmotor oder ein Wohlstandsprodukt?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, Verein für Socialpolitik, vol. 7(4), pages 471-499, November.
  6. Sufrauj, Shamnaaz & Schiavo, Stefano & Riccaboni, Massimo, 2014. "The Structure and Growth of World Trade, and the Role of Europe in the Global Economy," MPRA Paper 54122, University Library of Munich, Germany.
  7. Naci Mocan & Duha T. Altindag, 2013. "Salaries and Work Effort: An Analysis of the European Union Parliamentarians," Auburn Economics Working Paper Series, Department of Economics, Auburn University auwp2013-02, Department of Economics, Auburn University.
  8. Cingolani, Luciana & Crombrugghe, Denis de, 2012. "Techniques for dealing with reverse causality between institutions and economic performance," MERIT Working Papers 034, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  9. Randolph Luca Bruno, 2006. "Unique Equilibrium in a Model of Rule of Law," LEM Papers Series 2006/16, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  10. Natalia Melgar & Máximo Rossi, 2012. "Involvement in environmental causes, does the joint effect between subjective income and the performance of the country matter?," REVISTA DE ECONOMÍA DEL ROSARIO, UNIVERSIDAD DEL ROSARIO.

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