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Growth, Institutions and Productivity: An empirical analysis using the Bayesian approach

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Author Info
Erkki Siivonen
Arto Luoma
Jani Luoto
Abstract

In this paper we explore how the environment offered by institutions influences long-run growth. In order for the estimation results to be trustworthy we control the reliability of the estimates in several ways. Firstly, we include the lagged level of output per worker in the model to control the effect of conditional convergence. Secondly, we use the production function theory to form an environment of other inputs which may affect the parameter value of institutions and handle the issue of endogeneity using convenient instruments for institutions and other inputs. Thirdly, we use institutional indicator which is built using 18 indicators which all reflect the ability of institutions to create an environment in which the citizens can manage their risks they encounter during their life time. Finally, we study the sensitivity of estimation and control the effect of outliers and bad quality of data using a subsample of 22 industrial countries in addition to the total sample of 86 non-oil countries. Our cross-country analysis - based on Bayesian inference - confirms that the production environment offered by institutions has a significant role on economic growth, but it does not seem as dramatical as some may have expected.

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Paper provided by Government Institute for Economic Research (VATT) in its series VATT Research Reports with number 104.

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Date of creation: 07 Nov 2003
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Handle: RePEc:fer:resrep:104

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Keywords: Growth institutions productivity Bayesian analysis

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Find related papers by JEL classification:
C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Bayesian Analysis
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General

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  1. Daniel Cohen & Marcelo Soto, 2001. "Growth and Human Capital: Good Data, Good Results," OECD Development Centre Working Papers 179, OECD Development Centre. [Downloadable!]
    Other versions:
  2. Frank Kleibergen & Eric Zivot, 1998. "Bayesian and Classical Approaches to Instrumental Variable Regression," Discussion Papers in Economics at the University of Washington 0063, Department of Economics at the University of Washington. [Downloadable!]
    Other versions:
  3. Acemoglu, Daron & Aghion, Philippe & Zilibotti, Fabrizio, 2002. "Distance to Frontier, Selection, and Economic Growth," CEPR Discussion Papers 3467, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  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. 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. [Downloadable!] (restricted)
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  6. Mark Bils & Peter J. Klenow, 2000. "Does Schooling Cause Growth?," American Economic Review, American Economic Association, vol. 90(5), pages 1160-1183, December. [Downloadable!] (restricted)
  7. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. 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. [Downloadable!] (restricted)
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  10. Benhabib, Jess & Spiegel, Mark M., 1994. "The role of human capital in economic development evidence from aggregate cross-country data," Journal of Monetary Economics, Elsevier, vol. 34(2), pages 143-173, October. [Downloadable!] (restricted)
  11. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January. [Downloadable!] (restricted)
  12. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers 3095, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  13. Oliver E. Williamson, 2000. "The New Institutional Economics: Taking Stock, Looking Ahead," Journal of Economic Literature, American Economic Association, vol. 38(3), pages 595-613, September. [Downloadable!] (restricted)
  14. Aron, Janine, 2000. "Growth and Institutions: A Review of the Evidence," World Bank Research Observer, Oxford University Press, vol. 15(1), pages 99-135, February. [Downloadable!]
  15. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
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  16. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," NBER Working Papers 6849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January. [Downloadable!] (restricted)
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  18. 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. [Downloadable!] (restricted)
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  19. 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. [Downloadable!] (restricted)
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  20. repec:rus:hseeco:72137 is not listed on IDEAS
  21. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maija-Liisa Järviö & Juho Aaltonen & Tarmo Räty & Kalevi Luoma, 2005. "Productivity and its Drivers in Finnish Primary Care 1988-2003," VATT Research Reports 118, Government Institute for Economic Research (VATT). [Downloadable!]
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