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Are institutions in developing countries malleable?

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  • Kant, Chander

Abstract

Economists have recently emphasized Solow growth factors, physical capital, labor, and technology (“proximate” causes) depend on fundamentals like geography, culture, and institutions. I consider one of these fundamentals, institutions, and analyze whether they are malleable by a contemporary economic variable, globalization. The globalization I consider is of production through multinational corporations. Using the recently available data on institutional quality for almost all countries, I show institutional quality is higher with a greater FDI presence in developing countries. Nevertheless, there is no statistically significant effect on the same institutional variables in developed countries. By some measures, the income-gap between the rich and poor countries has worsened in the post-1950 period, and a consensus has emerged that poor institutions are to be blamed. A policy of encouraging FDI is likely to have the additional effect of improving institutions in developing countries and may have a greater potential to reduce income gaps than has been realized.

Suggested Citation

  • Kant, Chander, 2016. "Are institutions in developing countries malleable?," Journal of Policy Modeling, Elsevier, vol. 38(2), pages 272-289.
  • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:2:p:272-289
    DOI: 10.1016/j.jpolmod.2016.01.002
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    Keywords

    Institutions; Developing countries; Globalization; Multinational corporations.;

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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