Long-Term Vision and Economic Development

This paper examines the effect on economic development of whether a country's policy makers adopt a long-term vision. We use a novel institutional variable that indicates whether policy makers have a long-term strategic vision. However, the difficulty in estimating a causal effect is that long-term vision is endogenous to economic development. Therefore, we use the future-time reference language variables introduced in Chen (2013) as instrumental variables for long-term vision. To account for endogeneity, the paper conducts two stage least squares estimations where the language instruments are used in the first stage to find an exogenous source of variation in long-term vision. The results show that long-term vision, instrumented by futuretime reference, explains cross country variations in economic development. These results are robust even after the inclusion of control variables and after the exclusion of outliers.