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Institutions, Capital, and Growth

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Author Info

  • Joshua C. Hall

    ()
    (Department of Economics and Management, Beloit College, 700 College Street, Beloit, WI 53511, USA; E-mail)

  • Russell S. Sobel

    ()
    (Department of Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506-6025, USA;)

  • George R. Crowley

    ()
    (Department of Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506-6025, USA;)

Abstract

The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country’s institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2010)
Issue (Month): 2 (October)
Pages: 385-405

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Handle: RePEc:sej:ancoec:v:77:2:y:2010:p:385-405

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Web page: http://www.southerneconomic.org/
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References

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  1. Halvor Mehlum & Karl Moene & Ragnar Torvik, 2002. "Institutions and the resource curse," Development and Comp Systems 0210003, EconWPA.
  2. Barro, Robert J, 1991. "Economic Growth in a Cross Section of Countries," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 407-43, May.
  3. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1990. "The Allocation of Talent: Implicationsfor Growth," University of Chicago - George G. Stigler Center for Study of Economy and State 65, Chicago - Center for Study of Economy and State.
  4. Scott L. Baier & Gerald P. Dwyer, Jr. & Robert Tamura, 2002. "How important are capital and total factor productivity for economic growth?," Working Paper 2002-2, Federal Reserve Bank of Atlanta.
  5. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  6. William Easterly, 2006. "Reliving the 1950s: the big push, poverty traps, and takeoffs in economic development," Journal of Economic Growth, Springer, vol. 11(4), pages 289-318, December.
  7. Robert J. Barro, 2012. "Inflation and Economic Growth," CEMA Working Papers 568, China Economics and Management Academy, Central University of Finance and Economics.
  8. Lopez-de-Silanes, Florencio & Shleifer, Andrei & La Porta, Rafael, 2008. "The Economic Consequences of Legal Origins," Scholarly Articles 2962610, Harvard University Department of Economics.
  9. Gallup, J.L. & Sachs, J.D. & Mullinger, A., 1999. "Geography and Economic Development," Papers 1, Chicago - Graduate School of Business.
  10. 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, 05.
  11. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," NBER Working Papers 10568, National Bureau of Economic Research, Inc.
  12. Stroup, Michael D., 2008. "Separating the influence of capitalism and democracy on women's well-being," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 560-572, September.
  13. Jan-Egbert Sturm & Jakob De Haan, 2001. "How robust is the relationship between economic freedom and economic growth?," Applied Economics, Taylor & Francis Journals, vol. 33(7), pages 839-844.
  14. Lee C. Adkins & Ronald L. Moomaw & Andreas Savvides, 2002. "Institutions, Freedom, and Technical Efficiency," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 92-108, July.
  15. John Luke Gallup & Jeffrey D. Sachs & Andrew Mellinger, 1999. "Geography and Economic Development," CID Working Papers 1, Center for International Development at Harvard University.
  16. Julio H. Cole, 2003. "The Contribution of Economic Freedom to World Economic Growth: 1980-99," Cato Journal, Cato Journal, Cato Institute, vol. 23(2), pages 189-198, Fall.
  17. Stroup, Michael D., 2007. "Economic Freedom, Democracy, and the Quality of Life," World Development, Elsevier, vol. 35(1), pages 52-66, January.
  18. repec:cto:journl:v:24:y:2004:i:3:p: is not listed on IDEAS
  19. Daron Acemoglu & Simon Johnson, 2003. "Unbundling Institutions," NBER Working Papers 9934, National Bureau of Economic Research, Inc.
  20. James A. Robinson & Ragnar Torvik & Thierry Verdier, 2003. "Politcal Foundations of the Resource Curse," DELTA Working Papers 2003-33, DELTA (Ecole normale supérieure).
  21. Leeson, Peter T., 2007. "Better off stateless: Somalia before and after government collapse," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 689-710, December.
  22. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal Of Fortune: Geography And Institutions In The Making Of The Modern World Income Distribution," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1231-1294, November.
  23. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  24. Powell, Benjamin & Ford, Ryan & Nowrasteh, Alex, 2008. "Somalia after state collapse: Chaos or improvement?," Journal of Economic Behavior & Organization, Elsevier, vol. 67(3-4), pages 657-670, September.
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Citations

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Cited by:
  1. Bilin Neyapti, 2010. "Modeling Institutional Evolution," Koç University-TUSIAD Economic Research Forum Working Papers 1012, Koc University-TUSIAD Economic Research Forum.
  2. Thibaut Dort & Pierre-Guillaume Méon & Khalid Sekkat, 2013. "Does investment spur growth everywhere? Not where institutions are weak," Working Papers CEB 13-030, ULB -- Universite Libre de Bruxelles.
  3. Hugo J. Faria & Hugo M. Montesinos-Yufa & Daniel R. Morales, 2014. "Should the Modernization Hypothesis Survive Acemoglu, Johnson, Robinson, and Yared? Some More Evidence," Econ Journal Watch, Econ Journal Watch, vol. 11(1), pages 17-36, January.
  4. Wunnava, Phanindra V. & Mitra, Aniruddha & Prasch, Robert E., 2012. "Globalization, Institutions, and the Ethnic Divide: Recent Longitudinal Evidence," IZA Discussion Papers 6459, Institute for the Study of Labor (IZA).

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