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Which Institutions Promote Growth? Revisiting the Evidence

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  • Kuntal Das
  • Thomas Quirk

Abstract

Recent research examining the growth impacts of institutions have found that institutions are important in fostering economic growth. By building a framework around the institutional taxonomy proposed by Rodrik (2005), our paper contributes to the literature in the following way. First, we confirm the result that “institutions matter” and show that dfferent types of institutions matter differently for growth. By applying a dynamic panel model, we find that market-creating and market-stabilizing institutions are important in fostering economic growth. We then extend this analysis and investigate whether countries at different levels of development could respond heterogeneously to changes in their institutional structure. We find that poor countries benefit the most from market creating institutions and institutions that support market stability. We also find some evidence that market legitimizing institutions such as “democracy” are not necessarily optimal for growth in poor countries. These results have important implications for countries that decide on the optimal strategy to improve their institutional framework.
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Suggested Citation

  • Kuntal Das & Thomas Quirk, 2016. "Which Institutions Promote Growth? Revisiting the Evidence," Economic Papers, The Economic Society of Australia, vol. 35(1), pages 37-58, March.
  • Handle: RePEc:bla:econpa:v:35:y:2016:i:1:p:37-58
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    File URL: http://hdl.handle.net/10.1111/1759-3441.12128
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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • O50 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - General

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