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Institutions Rule

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Author Info

  • Arvind Subramanian
  • Francesco Trebbi
  • Dani Rodrik

Abstract

We estimate the respective contributions of institutions, geography, and trade in determining cross-country income levels using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions "trumps" everything else. Controlling for institutions, geography have at best weak direct effects on incomes, although it has a strong indirect effect through institutions. Similarly, controlling for institutions, trade has a negative, albeit, insignificant direct effect on income, 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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/189.

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Length: 46
Date of creation: 01 Nov 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/189

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Related research

Keywords: Development; equation; statistics; dummy variable; equations; samples; logarithm; descriptive statistics; correlations; statistic; correlation; bilateral trade; standard deviation; trade share; standard errors; elasticity of substitution; standard deviations; oil exporter; logarithms; openness measure; trade flows; political economy; income differences; econometrics; impact of trade; bilateral trade flows; measurement error; sample sizes; factor endowments; standard error; horizontal axis; explanatory power; significance level; transport costs; domestic prices; aggregate trade; endogenous growth; measure of trade; independent variable; international trade; empirical framework; world markets; global integration; scatter plot; trade partners; economic convergence; random error; prediction; estimation procedure; market integration; per capita income; instrumental variables; cross-country variation; sample size; open trade; free entry; trade barriers; number of regressors; expanded trade; linear prediction; open economies; economic integration; empirical specification; functional forms;

References

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  1. Francisco Alcalá & Antonio Ciccone, 2004. "Trade and Productivity," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 612-645, May.
  2. 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.
  3. 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.
  4. William A. Masters & Margaret S. McMillan, 2000. "Climate and Scale In Economic Growth," CID Working Papers 48, Center for International Development at Harvard University.
  5. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, . "The Quality of Government," Working Paper 19452, Harvard University OpenScholar.
  6. Sharun W. Mukand & Dani Rodrik, 2005. "In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance," American Economic Review, American Economic Association, vol. 95(1), pages 374-383, March.
  7. Irwin, Douglas A. & Tervio, Marko, 2002. "Does trade raise income?: Evidence from the twentieth century," Journal of International Economics, Elsevier, vol. 58(1), pages 1-18, October.
  8. Joshua Angrist & Alan Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," Working Papers 653, Princeton University, Department of Economics, Industrial Relations Section..
  9. Jeffrey D. Sachs, 2001. "Tropical Underdevelopment," NBER Working Papers 8119, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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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