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Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development

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  • Rodrik, Dani
  • Subramanian, Arvind
  • Trebbi, Francesco

Abstract

We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions 'trumps' everything else. Once institutions are controlled for, measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the 'wrong' (i.e. negative) sign, although trade too has a positive effect on institutional quality. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3643.

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Date of creation: Nov 2002
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Handle: RePEc:cpr:ceprdp:3643

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Keywords: development; economic growth; geography; institutions; trade;

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  1. Francisco Alcalá & Antonio Ciccone, 2001. "Trade and productivity," Economics Working Papers 580, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2002.
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  15. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," NBER Working Papers 6849, National Bureau of Economic Research, Inc.
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  18. Stanley L. Engerman & Kenneth L. Sokoloff, 1994. "Factor Endowments: Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States," NBER Historical Working Papers 0066, National Bureau of Economic Research, Inc.
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Blog mentions

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  1. Did AGOA work? Identification and export incentives
    by jdingel in Trade diversion on 2010-08-15 14:55:38

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  1. > Schools of Economic Thought, Epistemology of Economics > Heterodox Approaches > Institutional Economics
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