Foreign determinants of local institutions: Spatial dependence and openness
AbstractThere 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 InfoArticle provided by Elsevier in its journal European Journal of Political Economy.
Volume (Year): 28 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/505544
Economic institutions; Spatial dependence; Economic openness; Spatial econometrics;
Find related papers by JEL classification:
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- O19 - Economic Development, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
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