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Institutional Quality Mediates the Effect of Human Capital on Economic Performance

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  • Jonathon Adams-Kane
  • Jamus Jerome Lim

Abstract

This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, it seeks to establish the linkages by which government effectiveness affects per capita income, via its mediating effect on human capital formation. The empirical approach adopts a two-stage strategy that estimates national-level educational production functions that include government effectiveness as a covariate, and then uses these estimates as instruments for human capital in cross-country regressions of per capita income. The results identify a significant and positive effect of human capital on per capita income levels, and partially resolves the inconsistency between macro- and micro-level studies of the effect of human capital on income. The results also remain robust to alternative specifications, extension to a panel setting, subsamples of the data, and fully endogenous institutions.
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  • Jonathon Adams-Kane & Jamus Jerome Lim, 2016. "Institutional Quality Mediates the Effect of Human Capital on Economic Performance," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 426-442, May.
  • Handle: RePEc:bla:rdevec:v:20:y:2016:i:2:p:426-442
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    File URL: http://hdl.handle.net/10.1111/rode.12236
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    Cited by:

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    2. Idrissa Ouedraogo & Henri Ngoa Tabi & Henri Atangana Ondoa, 2020. "Effets de la qualité des institutions sur l'éducation en Afrique," African Development Review, African Development Bank, vol. 32(S1), pages 32-44, November.
    3. Jonathon Adams-Kane & Jamus Jerome Lim, 2016. "Institutional Quality Mediates the Effect of Human Capital on Economic Performance," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 426-442, May.
    4. Ghulam Mustafa & Muhammad Jamil, 2018. "Testing the Governance-Productivity Nexus for Emerging Asian Countries," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 23(1), pages 143-169, Jan-June.
    5. Ghosh, Saibal, 2021. "How important is trust in driving financial inclusion?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 30(C).
    6. Francesco Pasimeni & Paolo Pasimeni, 2016. "An Institutional Analysis of the Europe 2020 Strategy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 127(3), pages 1021-1038, July.
    7. Shahbaz, Muhammad & Gozgor, Giray & Hammoudeh, Shawkat, 2019. "Human capital and export diversification as new determinants of energy demand in the United States," Energy Economics, Elsevier, vol. 78(C), pages 335-349.
    8. Eric Yaw Naminse & Jincai Zhuang, 2018. "Does farmer entrepreneurship alleviate rural poverty in China? Evidence from Guangxi Province," PLOS ONE, Public Library of Science, vol. 13(3), pages 1-18, March.

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    More about this item

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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