Institutions, Human Capital and Development
AbstractIn 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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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19933.
Date of creation: Feb 2014
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Other versions of this item:
- I25 - Health, Education, and Welfare - - Education - - - Education and Economic Development
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-03-15 (All new papers)
- NEP-HIS-2014-03-15 (Business, Economic & Financial History)
- NEP-HPE-2014-03-15 (History & Philosophy of Economics)
- NEP-HRM-2014-03-15 (Human Capital & Human Resource Management)
- NEP-LTV-2014-03-15 (Unemployment, Inequality & Poverty)
- NEP-SOC-2014-03-15 (Social Norms & Social Capital)
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