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 Finland (VATT) in its series Research Reports with number
104.
Length: Date of creation: 07 Nov 2003 Date of revision: Handle: RePEc:fer:resrep:104
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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
References listed on IDEAS 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.:
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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