IDEAS home Printed from https://ideas.repec.org/a/bla/kyklos/v59y2006i2p255-273.html
   My bibliography  Save this article

Institutions and the Impact of Investment on Growth

Author

Listed:
  • James D. Gwartney
  • Randall G. Holcombe
  • Robert A. Lawson

Abstract

The literature on institutions and economic growth shows a close relationship between the quality of institutions and prosperity. This paper examines the impact of institutions on investment, and the resulting impact of investment on growth. The private investment rate of countries with better institutional quality is higher, and the productivity of any given level of investment is greater in countries with better institutions. Models that include various indicators of institutional quality along with inputs such as physical and human capital will generally underestimate the impact of institutional quality on growth because they do not account for the indirect impact of institutions on investment, as is done here. The paper also examines the direction of causality to show that higher institutional quality causes more investment, rather than the other way around. Further, future institutional improvements are more likely to occur against a background of poor economic performance than one of sustained growth.

Suggested Citation

  • James D. Gwartney & Randall G. Holcombe & Robert A. Lawson, 2006. "Institutions and the Impact of Investment on Growth," Kyklos, Wiley Blackwell, vol. 59(2), pages 255-273, May.
  • Handle: RePEc:bla:kyklos:v:59:y:2006:i:2:p:255-273
    DOI: 10.1111/j.1467-6435.2006.00327.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.1467-6435.2006.00327.x
    Download Restriction: no

    File URL: https://libkey.io/10.1111/j.1467-6435.2006.00327.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    2. Jeffrey D. Sachs, 2001. "Tropical Underdevelopment," NBER Working Papers 8119, National Bureau of Economic Research, Inc.
    3. Mr. Arvind Subramanian & Mr. Francesco Trebbi & Mr. Dani Rodrik, 2002. "Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development," IMF Working Papers 2002/189, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Rodríguez-Pose, Andrés & Ketterer, Tobias, 2016. "Institutions vs. ‘First-Nature’ Geography – What Drives Economic Growth in Europe’s Regions?," CEPR Discussion Papers 11322, C.E.P.R. Discussion Papers.
    2. Mauricio Cárdenas, 2007. "Economic Growth in Colombia : a reversal of "fortune"?," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 25(53), pages 220-259, January.
    3. W. A. Naudé, 2004. "The effects of policy, institutions and geography on economic growth in Africa: an econometric study based on cross-section and panel data," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(6), pages 821-849.
    4. Ageeva Svetlana & Suslov Nikita, 2005. "Energy Consumption and GDP in Market and Transitional Economies," EERC Working Paper Series 05-05e, EERC Research Network, Russia and CIS.
    5. Laurens Cherchye & Wim Moesen, 2003. "Institutional Infrastructure and Economic Performance: Levels versus Catching Up and Frontier Shifts," Public Economics Working Paper Series ces0314, Katholieke Universiteit Leuven, Centrum voor Economische Studiën, Working Group Public Economics.
    6. Olsson, Ola & Hibbs, Douglas Jr., 2005. "Biogeography and long-run economic development," European Economic Review, Elsevier, vol. 49(4), pages 909-938, May.
    7. Andrea F. Presbitero, 2006. "Institutions and geography as sources of economic development," Journal of International Development, John Wiley & Sons, Ltd., vol. 18(3), pages 351-378.
    8. Bernardo Blum, 2003. "The Course of Geography: A View about the Process of Wealth. Creation and Distribution," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 423-433.
    9. Lubna Hasan, 2007. "Myths and Realities of Long-run Development: A Look at Deeper Determinants," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 46(1), pages 19-44.
    10. Nunnenkamp Peter, 2003. "Wachstumsdivergenz zwischen Entwicklungsländern: Hat die Entwicklungsökonomie versagt?," Zeitschrift für Wirtschaftspolitik, De Gruyter, vol. 52(2), pages 227-253, August.
    11. Alonso, José Antonio, 2007. "Inequality, institutions and progress: a debate between history and the present," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    12. Dibyendu Maiti & Sugata Marjit, 2015. "Regional Openness, Income Growth and Disparity during 1980–2009," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 16(1), pages 145-166, March.
    13. Dollar, David & Levin, Victoria, 2005. "Sowing and reaping: institutional quality and project outcomes in developing countries," Policy Research Working Paper Series 3524, The World Bank.
    14. W. A. Naude & W. F. Krugell, 2007. "Investigating geography and institutions as determinants of foreign direct investment in Africa using panel data," Applied Economics, Taylor & Francis Journals, vol. 39(10), pages 1223-1233.
    15. Tobias D. Ketterer & Andrés Rodríguez‐Pose, 2018. "Institutions vs. ‘first‐nature’ geography: What drives economic growth in Europe's regions?," Papers in Regional Science, Wiley Blackwell, vol. 97(S1), pages 25-62, March.
    16. Graham Bird, 2004. "Growth, poverty and the IMF," Journal of International Development, John Wiley & Sons, Ltd., vol. 16(4), pages 621-636.
    17. Juan Mendoza & Andrés Rosas, 2013. "The Economic Effects of Geography: Colombia as a Case Study," Revista Desarrollo y Sociedad, Universidad de los Andes,Facultad de Economía, CEDE, January.
    18. Gnidchenko, Andrey, 2011. "Моделирование Технологических И Институциональных Эффектов В Макроэкономическом Прогнозировании [Technological and Institutional Effects Modeling in Macroeconomic Forecasting]," MPRA Paper 35484, University Library of Munich, Germany, revised May 2011.
    19. Alvar Kangur, 2008. "What rules in the 'deep' determinants of comparative development?," Economics Series Working Papers 386, University of Oxford, Department of Economics.
    20. Lederman, Daniel & Saenz, Laura, 2005. "Innovation and development around the world, 1960-2000," Policy Research Working Paper Series 3774, The World Bank.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:kyklos:v:59:y:2006:i:2:p:255-273. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0023-5962 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.