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Foreign determinants of local institutions: Spatial dependence and openness

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  • Faber, Gerrit
  • Gerritse, Michiel
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    Abstract

    There are both empirical and theoretical arguments for the thesis that foreign factors have an impact on domestic institutional quality. Yet the literature is divided over whether exposure (openness to the world economy) or the kind of institutions in surrounding countries (relative location) determines the quality of local institutions. This paper confronts these hypotheses empirically, addressing the issues of strong cross-sectional dependence and the endogeneity of openness. In a 107-country cross-section, both trade openness and relative location have a positive impact on local institutions. The institutional quality of neighbouring countries is not found to be statistically significant when considering openness to foreign direct investments instead of trade, but the statistical performance of that model is poorer.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Political Economy.

    Volume (Year): 28 (2012)
    Issue (Month): 1 ()
    Pages: 54-63

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    Handle: RePEc:eee:poleco:v:28:y:2012:i:1:p:54-63

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    Web page: http://www.elsevier.com/locate/inca/505544

    Related research

    Keywords: Economic institutions; Spatial dependence; Economic openness; Spatial econometrics;

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    Cited by:
    1. Libman, Alexander & Herrmann-Pillath, Carsten & Yadav, Gaurav, 2013. "Are human rights and economic well-being substitutes? The evidence from migration patterns across the Indian states," European Journal of Political Economy, Elsevier, vol. 31(C), pages 139-164.
    2. Fidrmuc, Jan & Karaja, Elira, 2013. "Uncertainty, informational spillovers and policy reform: A gravity model approach," European Journal of Political Economy, Elsevier, vol. 32(C), pages 182-192.
    3. Pieroni, L. & d'Agostino, G., 2013. "Corruption and the effects of economic freedom," European Journal of Political Economy, Elsevier, vol. 29(C), pages 54-72.

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