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Institutions, Human Capital, and Development

Listed author(s):
  • Daron Acemoglu

    ()

    (Department of Economics, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142
    Canadian Institute for Advanced Research, Toronto, Ontario M5G 1Z8, Canada)

  • Francisco A. Gallego

    ()

    (Instituto de Economía and Economic History and Cliometrics Lab, Pontificia Universidad Católica de Chile, Macul, Santiago, Chile)

  • James A. Robinson

    ()

    (Canadian Institute for Advanced Research, Toronto, Ontario M5G 1Z8, Canada
    Department of Government, Harvard University, Cambridge, Massachusetts 02138)

In this article, we revisit the relationship among institutions, human capital, and development. We argue that empirical models that treat institutions and human capital as exogenous are misspecified, both because of the usual omitted variable bias problems and because of differential measurement error in these variables, and that this misspecification is at the root of the very large returns of human capital, about four to five times greater than that implied by micro (Mincerian) estimates, found in the previous literature. Using cross-country and cross-regional regressions, we show that when we focus on historically determined differences in human capital and control for the effect of institutions, the impact of institutions on long-run development is robust, whereas the estimates of the effect of human capital are much diminished and become consistent with micro estimates. Using historical and cross-country regression evidence, we also show that there is no support for the view that differences in the human capital endowments of early European colonists have been a major factor in the subsequent institutional development of former colonies.

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File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-economics-080213-041119
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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 6 (2014)
Issue (Month): 1 (August)
Pages: 875-912

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Handle: RePEc:anr:reveco:v:6:y:2014:p:875-912
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References listed on IDEAS
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  1. Willa Friedman & Michael Kremer & Edward Miguel & Rebecca Thornton, 2016. "Education as Liberation?," Economica, London School of Economics and Political Science, vol. 83(329), pages 1-30, 01.
  2. Gregory Clark, 2005. "The Condition of the Working Class in England, 1209-2004," Journal of Political Economy, University of Chicago Press, vol. 113(6), pages 1307-1340, December.
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  5. Francisco Gallego & Robert Woodberry, 2008. "Christian Missionaries and Education in Former Colonies: How Institutions Mattered," Documentos de Trabajo 339, Instituto de Economia. Pontificia Universidad Católica de Chile..
  6. Lakshmi Iyer, 2010. "Direct versus Indirect Colonial Rule in India: Long-Term Consequences," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 693-713, November.
  7. Ewout H.P. Frankema, 2012. "The origins of formal education in sub-Saharan Africa: was British rule more benign?," European Review of Economic History, Oxford University Press, vol. 16(4), pages 335-355, November.
  8. Acemoglu, Daron & García-Jimeno, Camilo & Robinson, James A., 2012. "Finding Eldorado: Slavery and long-run development in Colombia," Journal of Comparative Economics, Elsevier, vol. 40(4), pages 534-564.
  9. Miriam Bruhn & Francisco A. Gallego, 2012. "Good, Bad, and Ugly Colonial Activities: Do They Matter for Economic Development?," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 433-461, May.
  10. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
  11. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
  12. Nicola Gennaioli & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2013. "Human Capital and Regional Development," The Quarterly Journal of Economics, Oxford University Press, vol. 128(1), pages 105-164.
  13. Naritomi, Joana & Soares, Rodrigo R. & Assunção, Juliano J., 2012. "Institutional Development and Colonial Heritage within Brazil," The Journal of Economic History, Cambridge University Press, vol. 72(02), pages 393-422, June.
  14. Chernozhukov, Victor & Hansen, Christian, 2008. "The reduced form: A simple approach to inference with weak instruments," Economics Letters, Elsevier, vol. 100(1), pages 68-71, July.
  15. Nathan Nunn, 2010. "Religious Conversion in Colonial Africa," American Economic Review, American Economic Association, vol. 100(2), pages 147-152, May.
  16. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1231-1294.
  17. Stelios Michalopoulos & Elias Papaioannou, 2013. "Pre‐Colonial Ethnic Institutions and Contemporary African Development," Econometrica, Econometric Society, vol. 81(1), pages 113-152, 01.
  18. Acemoglu, Daron, 2005. "Politics and economics in weak and strong states," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1199-1226, October.
  19. Anna Mikusheva & Brian P. Poi, 2006. "Tests and confidence sets with correct size when instruments are potentially weak," Stata Journal, StataCorp LP, vol. 6(3), pages 335-347, September.
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  21. Francisco A. Gallego & Robert Woodberry, 2010. "Christian Missionaries and Education in Former African Colonies: How Competition Mattered," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 19(3), pages 294-329, June.
  22. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
  23. Francisco A. Gallego, 2010. "Historical Origins of Schooling: The Role of Democracy and Political Decentralization," The Review of Economics and Statistics, MIT Press, vol. 92(2), pages 228-243, May.
  24. Stanley L. Engerman & Kenneth L. Sokoloff, 2011. "Economic Development in the Americas since 1500: Endowments and Institutions," NBER Books, National Bureau of Economic Research, Inc, number enge11-1, October.
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