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Unbundling the roles of human capital and institutions in economic development

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  • Faria, Hugo J.
  • Montesinos-Yufa, Hugo M.
  • Morales, Daniel R.
  • Navarro, Carlos E.

Abstract

This research uses predicted genetic diversity unadjusted for the ancestral composition of current populations, as a plausible source of exogenous variations for indicators of economic institutions. While genetic diversity has a robust, concave and significant effect on economic institutions, reduced-form regressions and numerous falsification tests ostensibly suggest that genetic diversity affects development only via indices of multidimensional measures of economic institutions. Second-stage results indicate that allowing for cognitive skills, latitude and ethno-diversity, economic institutions exert a positive and strongly statistically significant effect on development. These findings are robust to the inclusion of deep and proximate growth determinants, different measures of geography, institutions, and horse races between cognitive skills and economic freedom, as well as to the use of different estimators. Human capital, gauged by cognitive skills, in most specifications is not significant in the second stage; however, it is positive and a strong significant predictor of economic institutions in the first stage. The empirical evidence unveiled in this study lends credence to the primacy of economic institutions hypothesis to ignite long-term growth and highlights the crucial role of human capital in enhancing economic institutional quality.

Suggested Citation

  • Faria, Hugo J. & Montesinos-Yufa, Hugo M. & Morales, Daniel R. & Navarro, Carlos E., 2016. "Unbundling the roles of human capital and institutions in economic development," European Journal of Political Economy, Elsevier, vol. 45(S), pages 108-128.
  • Handle: RePEc:eee:poleco:v:45:y:2016:i:s:p:108-128
    DOI: 10.1016/j.ejpoleco.2016.08.001
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    Cited by:

    1. repec:eee:wdevel:v:96:y:2017:i:c:p:503-519 is not listed on IDEAS
    2. Daniel L. Bennett & Hugo J. Faria & James D. Gwartney & Daniel R. Morales, 2016. "Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective," Working Papers 2016-07, University of Miami, Department of Economics.

    More about this item

    Keywords

    Comparative economic development; Economic freedom institutions; Cognitive skills; Causation and identification; Genetic diversity;

    JEL classification:

    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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