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Institutions, Human Capital and Development

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  • Daron Acemoglu
  • Francisco Gallego
  • James A. Robinson

Abstract

In this paper we revisit the relationship between institutions, human capital and development. We argue that empirical models that treat institutions and human capital as exogenous are misspecified both because of the usual omitted variable bias problems and because of differential measurement error in these variables, and that this misspecification is at the root of the very large returns of human capital, about 4 to 5 times greater than that implied by micro (Mincerian) estimates, found in some of the previous literature. Using cross-country and cross-regional regressions, we show that when we focus on historically-determined differences in human capital and control for the effect of institutions, the impact of institutions on long-run development is robust, while the estimates of the effect of human capital are much diminished and become consistent with micro estimates. Using historical and cross-country regression evidence, we also show that there is no support for the view that differences in the human capital endowments of early European colonists have been a major factor in the subsequent institutional development of these polities.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19933.

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Date of creation: Feb 2014
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Handle: RePEc:nbr:nberwo:19933

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  1. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 83-116, February.
  2. 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, MIT Press, vol. 117(4), pages 1231-1294, November.
  3. Nunn, Nathan, 2010. "Religious Conversion in Colonial Africa," Scholarly Articles, Harvard University Department of Economics 11986328, Harvard University Department of Economics.
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  9. Daron Acemoglu & Camilo García-Jimeno & James A. Robinson, 2012. "Finding Eldorado: Slavery and Long-run Development in Colombia," NBER Working Papers, National Bureau of Economic Research, Inc 18177, National Bureau of Economic Research, Inc.
  10. Lakshmi Iyer, 2005. "Direct versus Indirect Colonial Rule in India: Long-term Consequences," Harvard Business School Working Papers, Harvard Business School 05-041, Harvard Business School, revised Nov 2008.
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  13. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers, National Bureau of Economic Research, Inc 20004, National Bureau of Economic Research, Inc.
  14. Francisco A. Gallego & Robert Woodberry, 2010. "Christian Missionaries and Education in Former African Colonies: How Competition Mattered," Journal of African Economies, Centre for the Study of African Economies (CSAE), Centre for the Study of African Economies (CSAE), vol. 19(3), pages 294-329, June.
  15. Ewout H.P. Frankema, 2012. "The origins of formal education in sub-Saharan Africa: was British rule more benign?," European Review of Economic History, Oxford University Press, Oxford University Press, vol. 16(4), pages 335-355, November.
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