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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. Sharun Mukand & Dani Rodrik, 2002. "In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance," NBER Working Papers 9134, National Bureau of Economic Research, Inc.
  2. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  3. North, Douglass C., 1993. "Economic Performance through Time," Nobel Prize in Economics documents 1993-2, Nobel Prize Committee.
  4. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," Harvard Institute of Economic Research Working Papers 1856, Harvard - Institute of Economic Research.
  5. 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.
  6. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," NBER Working Papers 6849, National Bureau of Economic Research, Inc.
  7. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 612-645, May.
  8. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
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  10. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  11. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  12. Jeffrey D. Sachs, 2001. "Tropical Underdevelopment," NBER Working Papers 8119, National Bureau of Economic Research, Inc.
  13. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  14. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
  15. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1998. "The Quality of Goverment," NBER Working Papers 6727, National Bureau of Economic Research, Inc.
  16. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
  17. Douglas A. Irwin & Marko Tervio, 2000. "Does Trade Raise Income? Evidence from the Twentieth Century," NBER Working Papers 7745, National Bureau of Economic Research, Inc.
  18. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
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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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