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How the quality of institutions affects technological deepening in developing countries

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  • Clarke, George

Abstract

This paper assesses the effect of institutional quality on research and development (R&D) expenditures in developing countries. The paper finds that the risk of expropriation and the rule of law are correlated with R&D expenditures. Since both institutional variables increase as institutional quality improves (i.e., as risk of expropriation decreases and rule of law improves), this suggests that stronger institutions encourage greater R&D expenditures. The result for the risk of expropriation is more highly significant and far more robust than the result for the'rule of law'. Although R&D is not the primary way that developing countries gain access to technology, this result is interesting for at least two reasons. First, R&D might encourage technological deepening better than other methods that developing countries use to gain access to technology (e.g., through foreign direct investment (FDI) or capital goods imports). Second, past work has shown that another important way that developing countries gain access to technology, through FDI, is also positively correlated with institutional quality (i.e., as institutional quality improves, FDI increases).

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2603.

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Date of creation: 25 Apr 2001
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Handle: RePEc:wbk:wbrwps:2603

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Keywords: International Terrorism&Counterterrorism; Environmental Economics&Policies; Decentralization; Economic Theory&Research; Health Economics&Finance; Environmental Economics&Policies; Economic Theory&Research; Scientific Research&Science Parks; Science Education; International Terrorism&Counterterrorism;

References

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  1. Jaffe, Adam B, 1989. "Real Effects of Academic Research," American Economic Review, American Economic Association, American Economic Association, vol. 79(5), pages 957-70, December.
  2. Keefer, Philip & Knack, Stephen, 1997. "Why Don't Poor Countries Catch Up? A Cross-National Test of Institutional Explanation," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 35(3), pages 590-602, July.
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  5. Shang-Jin Wei, 2000. "How Taxing is Corruption on International Investors?," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 1-11, February.
  6. Gastanaga, Victor M. & Nugent, Jeffrey B. & Pashamova, Bistra, 1998. "Host Country Reforms and FDI Inflows: How Much Difference do they Make?," World Development, Elsevier, Elsevier, vol. 26(7), pages 1299-1314, July.
  7. Pack, Howard & Saggi, Kamal, 1997. "Inflows of Foreign Technology and Indigenous Technological Development," Review of Development Economics, Wiley Blackwell, Wiley Blackwell, vol. 1(1), pages 81-98, February.
  8. Levine, Ross & Renelt, David, 1992. "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 942-63, September.
  9. Pritchett, Lant, 1996. "Measuring outward orientation in LDCs: Can it be done?," Journal of Development Economics, Elsevier, Elsevier, vol. 49(2), pages 307-335, May.
  10. McAleer, Michael & Pagan, Adrian, 1985. "What Will Take the Con Out of Econometrics?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 39, C.E.P.R. Discussion Papers.
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  12. Leamer, Edward E, 1985. "Sensitivity Analyses Would Help," American Economic Review, American Economic Association, American Economic Association, vol. 75(3), pages 308-13, June.
  13. Dahlman, Carl J. & Ross-Larson, Bruce & Westphal, Larry E., 1987. "Managing technological development: Lessons from the newly industrializing countries," World Development, Elsevier, Elsevier, vol. 15(6), pages 759-775, June.
  14. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 110(3), pages 681-712, August.
  15. Ram, Rati, 1995. "Defense expenditure and economic growth," Handbook of Defense Economics, Elsevier, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 10, pages 251-274 Elsevier.
  16. Romer, Paul, 1993. "Idea gaps and object gaps in economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 32(3), pages 543-573, December.
  17. Lee, Jeong-Yeon & Mansfield, Edwin, 1996. "Intellectual Property Protection and U.S. Foreign Direct Investment," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 181-86, May.
  18. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 7(3), pages 207-227, November.
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Citations

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Cited by:
  1. Wihlborg, Clas, 2002. "Insolvency and Debt Recovery Procedures in Economic Development: An Overview of African Law," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Law, Siong Hook & Habibullah, Muzafar Shah, 2006. "Financial Development, Institutional Quality and Economic Performance in East Asian Economies," Review of Applied Economics, Review of Applied Economics, Review of Applied Economics, vol. 2(2).
  3. Sebastián Fleitas & Andrés Rius & Carolina Román & Henry Willebald, 2013. "Contract enforcement, investment and growth in Uruguay since 1870," Documentos de Trabajo (working papers) 13-01, Instituto de Economía - IECON.
  4. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 5373-5381.
  5. Ugur, Mehmet, 2010. "Institutions and economic performance: a review of the theory and evidence," MPRA Paper 25909, University Library of Munich, Germany, revised Oct 2010.
  6. Ricardo N.Bebczuk, 2002. "R&D expenditures and the role of government around the world," Estudios de Economia, University of Chile, Department of Economics, University of Chile, Department of Economics, vol. 29(1 Year 20), pages 109-121, June.
  7. Paul, Bénédique, 2012. "Technology and institutions: Theoretical aspects of institutional innovation and its deficiency in Haiti," MPRA Paper 39140, University Library of Munich, Germany.
  8. dogru, bulent, 2012. "The effect of instıtutıonal varıables on fdi inflows: Evidence from upper-middle income countries," MPRA Paper 37531, University Library of Munich, Germany.

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