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Institutions, Geography and Trade: A Panel Data Study

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  • Jeffry Jacob

    ()
    (Bethel University)

  • Thomas Osang

    ()
    (SMU)

Abstract

A number of recent papers study the impact of institutions, trade and geography known as “deep determinants” of economic development using cross-section data. This paper instead employs a panel data approach to examine the impact of these three determinants on per capita income. Our approach enables us to account for unobserved heterogeneity across countries, an issue that cannot be addressed in a cross-section framework. Moreover, employing the Hausman and Taylor (1981) approach allows us to obtain direct parameter estimates of the time invariant explanatory variables like geography or some institutional measures, making our results comparable to the existing cross-section iterature. Also, by using lagged explanatory variables whenever possible we can account for contemporaneous correlation between these variables and the idiosyncratic error term. We find that the quality of institutions and openness to trade both have positive and statistically significant coefficient estimates throughout most specifications, while geography, captured by malaria ecology measure, has negative estimates that are often, but not always statistically significant. In terms of their economic impact, institutional measures appear to have the strongest impact, followed by openness to trade measures. In comparison, geography measures have rather small elasticity estimates.

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Bibliographic Info

Paper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0706.

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Length: 38 pages
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:smu:ecowpa:706

Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Phone: 214-768-2715
Fax: 214-768-1821
Web page: http://www.smu.edu/economics

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Keywords: Development; Institutions; Openness; Geography; panel data;

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References

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Cited by:
  1. Efendic, Adnan & Pugh, Geoff & Adnett, Nick, 2011. "Institutions and economic performance: A meta-regression analysis," European Journal of Political Economy, Elsevier, vol. 27(3), pages 586-599, September.
  2. Nathan Perry & Carlos Schönerwald, 2009. "Institutions, Geography, and Terms of Trade in Latin America: A Longitudinal Econometric Analysis," Working Paper Series, Department of Economics, University of Utah, University of Utah, Department of Economics 2009_04, University of Utah, Department of Economics.

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