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Unbundling Institutions

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Author Info
Daron Acemoglu
Simon Johnson

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Abstract

This paper evaluates the importance of property rights institutions', which protect citizens against expropriation by the government and powerful elites, and contracting institutions', which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history, and document strong first-stage relationships between property rights institutions and the determinants of European colonization (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using this instrumental variables strategy, we find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible interpretation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of contracting institutions but are unable to do so against the risk of expropriation.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9934.

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Date of creation: Sep 2003
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Handle: RePEc:nbr:nberwo:9934

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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References listed on IDEAS
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  1. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
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  2. Simeon Djankov & Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer, 2003. "The New Comparative Economics," NBER Working Papers 9608, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June. [Downloadable!] (restricted)
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  4. De Long, J Bradford & Shleifer, Andrei, 1993. "Princes and Merchants: European City Growth before the Industrial Revolution," Journal of Law & Economics, University of Chicago Press, vol. 36(2), pages 671-702, October.
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  5. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February. [Downloadable!] (restricted)
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  6. Thorsten Beck & Ross Levine, 2002. "Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?," NBER Working Papers 8982, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. 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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  8. Simeon Djankov & Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "The Regulation Of Entry," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 1-37, February. [Downloadable!] (restricted)
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  9. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December. [Downloadable!] (restricted)
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  10. repec:rus:hseeco:72153 is not listed on IDEAS
  11. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December. [Downloadable!] (restricted)
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  12. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law, endowments, and finance," Journal of Financial Economics, Elsevier, vol. 70(2), pages 137-181, November. [Downloadable!] (restricted)
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  13. Edward L. Glaeser & Andrei Shleifer, 2002. "Legal Origins," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1193-1229, November. [Downloadable!] (restricted)
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