Institutions, Capital, and Growth
AbstractThe international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country's institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.
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Bibliographic InfoPaper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-15.
Length: 46 pages
Date of creation: 2010
Date of revision:
Institutions; Capital; and Growth;
Other versions of this item:
- B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
- O10 - Economic Development, Technological Change, and Growth - - Economic Development - - - General
- I2 - Health, Education, and Welfare - - Education
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-10-02 (All new papers)
- NEP-DEV-2010-10-02 (Development)
- NEP-FDG-2010-10-02 (Financial Development & Growth)
- NEP-HRM-2010-10-02 (Human Capital & Human Resource Management)
- NEP-SOC-2010-10-02 (Social Norms & Social Capital)
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- Neyapti, Bilin, 2013. "Modeling institutional evolution," Economic Systems, Elsevier, vol. 37(1), pages 1-16.
- Wunnava, Phanindra V. & Mitra, Aniruddha & Prasch, Robert E., 2012. "Globalization, Institutions, and the Ethnic Divide: Recent Longitudinal Evidence," IZA Discussion Papers 6459, Institute for the Study of Labor (IZA).
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