Institutions, Geography and Trade: A Panel Data Study
AbstractA 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 InfoPaper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0706.
Length: 38 pages
Date of creation: Jul 2007
Date of revision:
Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Web page: http://www.smu.edu/economics
Development; Institutions; Openness; Geography; panel data;
Find related papers by JEL classification:
- O1 - Economic Development, Technological Change, and Growth - - Economic Development
- N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
- H1 - Public Economics - - Structure and Scope of Government
- F1 - International Economics - - Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-08 (All new papers)
- NEP-DEV-2007-08-08 (Development)
- NEP-INT-2007-08-08 (International Trade)
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