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Institutions and growth revisited: OLS, 2SLS, G2SLS random effects IV regression and panel fixed (within) IV regression with cross-country data

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  • Josheski, Dushko
  • Fotov, Risto
  • Lazarov, Darko
  • Koteski, Cane

Abstract

This paper revisits the Institutions and growth models. Econometric techniques have been applied on cross-country data, just to confirm the apriori knowledge that Institutions effect on growth is positive and highly statistically significant. This evidence was confirmed by all four models. OLS proved as a better technique for our data than 2SLS, this simply because overidentification test showed that instrument cannot be considered exogenous, also Hausman test showed that OLS is better than 2SLS at 1% and 5% levels of significance. G2SLS estimator and Fixed effects panel estimators just confirmed the results from the OLS and 2SLS. As a proxy variable for institutions we used Rule of law variable, also as instruments were used revolutions and Freedom house rating as well as War casualties variables. Also as conclusion here Trade is insignificant in influence to GDP growth compared with quality of institutions.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 33842.

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Date of creation: 02 Oct 2011
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Handle: RePEc:pra:mprapa:33842

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Keywords: Institutions; Growth; 2SLS; OLS; G2SLS Random effects IV regression and Panel Fixed (within) IV regression; cross-country data; Hausman test; Overidentification test;

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  1. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1369-1401, December.
  2. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
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