IDEAS home Printed from https://ideas.repec.org/a/red/issued/09-2.html
   My bibliography  Save this article

Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico

Author

Listed:
  • Konstantinos Angelopoulos

    (University of Glasgow)

  • George Economides

    (Athens University of Economics and Business)

  • Vanghelis Vassilatos

    (Athens University of Economics and Business)

Abstract

In this paper we introduce weak property rights in the standard real business cycle (RBC) model in order to examine the role of institutions as a source of economic fluctuations in emerging markets. In particular, in Mexico, the movements in productivity in the data are associated with changes in institutions, so that we can explain productivity shocks to a large extent as shocks to the quality of institutions. We find that the model with shocks to the degree of protection of property rights can match the second moments in the data for Mexico very well. Moreover, the fit is better than that of the standard neoclassical model with full protection of property rights regarding the auto-correlations and cross-correlations in the data. Viewing productivity shocks as shocks to institutions is also consistent with the stylized fact of falling productivity and non-decreasing labor hours in Mexico over 1980-1994, which is a feature that the neoclassical model cannot match. (Copyright: Elsevier)

Suggested Citation

  • Konstantinos Angelopoulos & George Economides & Vanghelis Vassilatos, 2011. "Do institutions matter for economic fluctuations? Weak property rights in a business cycle model for Mexico," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(3), pages 511-531, July.
    • Handle: RePEc:red:issued:09-2
    DOI: 10.1016/j.red.2010.04.002
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1016/j.red.2010.04.002
    Download Restriction: Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.
    File URL: https://libkey.io/10.1016/j.red.2010.04.002?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Klein, Paul, 2000. "Using the generalized Schur form to solve a multivariate linear rational expectations model," Journal of Economic Dynamics and Control, Elsevier, vol. 24(10), pages 1405-1423, September.
    2. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
    3. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
    4. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 217-238, June.
    5. Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers 0105, Federal Reserve Bank of Dallas.
    6. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, vol. 115(1), pages 69-102.
    7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    8. Nora Lustig, 2001. "Life Is Not Easy: Mexico's Quest for Stability and Growth," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 85-106, Winter.
    9. Acemoglu, Daron & Johnson, Simon & Robinson, James & Thaicharoen, Yunyong, 2003. "Institutional causes, macroeconomic symptoms: volatility, crises and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 49-123, January.
    10. Patrick J. Kehoe & Ellen R. McGrattan, 2005. "Sudden Stops and Output Drops," American Economic Review, American Economic Association, vol. 95(2), pages 381-387, May.
    11. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    12. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-1174, December.
    13. Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "A Decade Lost and Found: Mexico and Chile in the 1980s," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 166-205, January.
    14. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Papers (Old Series) 9312, Federal Reserve Bank of Cleveland.
    15. King, Robert G. & Rebelo, Sergio T., 1999. "Resuscitating real business cycles," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 14, pages 927-1007, Elsevier.
    16. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
    17. Raphael Bergoeing & Patrick J. Kehoe & Timothy J. Kehoe & Raimundo Soto, 2002. "Policy-Driven Productivity in Chile and Mexico in the 1980's and 1990's," American Economic Review, American Economic Association, vol. 92(2), pages 16-21, May.
    18. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross‐Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    19. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 503-530.
    20. 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, President and Fellows of Harvard College, vol. 117(4), pages 1231-1294.
    21. Sergio Rebelo, 2005. "Real Business Cycle Models: Past, Present and Future," RCER Working Papers 522, University of Rochester - Center for Economic Research (RCER).
    22. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
    23. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1993. "Labor Hoarding and the Business Cycle," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 245-273, April.
    24. George Economides & Hyun Park & Apostolis Philippopoulos, 2007. "Optimal Protection of Property Rights in a General Equilibrium Model of Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 109(1), pages 153-175, March.
    25. Kollintzas, Tryphon & Vassilatos, Vanghelis, 2000. "A small open economy model with transaction costs in foreign capital," European Economic Review, Elsevier, vol. 44(8), pages 1515-1541, August.
    26. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    27. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306, April.
    28. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    29. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, October.
    30. García Verdú Rodrigo, 2005. "Factor Shares From Household Survey Data," Working Papers 2005-05, Banco de México.
    31. Felipe Meza & Erwan Quintin, 2005. "Financial Crises and Total Factor Productivity: The Mexican Case," 2005 Meeting Papers 478, Society for Economic Dynamics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies : a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland, Institute for Economies in Transition.
    2. Roberto Duncan, 2015. "Simple Models to Understand and Teach Business Cycle Macroeconomics for Emerging Market and Developing Economies," Working Papers 49, Peruvian Economic Association.
    3. Vasilev, Aleksandar, 2022. "Decomposing the Grey Economy in Bulgaria: A General-Equilibrium Analysis," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 8(2), pages 7-23.
    4. repec:zbw:bofitp:2014_006 is not listed on IDEAS
    5. Vasilev, Aleksandar, 2013. "On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework," SIRE Discussion Papers 2013-84, Scottish Institute for Research in Economics (SIRE).
    6. Aleksandar Vasilev, 2017. "VAT Evasion in Bulgaria: A General-Equilibrium Approach," Review of Economics and Institutions, Università di Perugia, vol. 8(2).
    7. Gogos, Stylianos G. & Mylonidis, Nikolaos & Papageorgiou, Dimitris & Vassilatos, Vanghelis, 2014. "1979–2001: A Greek great depression through the lens of neoclassical growth theory," Economic Modelling, Elsevier, vol. 36(C), pages 316-331.
    8. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    9. Aleksandar Vasilev, 2017. "On the Cost of Opportunistic Behavior in the Public Sector: A General-Equilibrium Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(2), pages 565-582, April.
    10. Yasmeen, Rizwana & Tao, Rui & Jie, Wanchen & Padda, Ihtsham Ul Haq & Shah, Wasi Ul Hassan, 2022. "The repercussions of business cycles on renewable & non-renewable energy consumption structure: Evidence from OECD countries," Renewable Energy, Elsevier, vol. 190(C), pages 572-583.
    11. Vasilev, Aleksandar, 2018. "Is consumption-Laffer curve hump-shaped? The VAT evasion channel," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 45(3), pages 598-609.
    12. Angelos Angelopoulos & Konstantinos Angelopoulos & Spyridon Lazarakis & Apostolis Philippopoulos, 2021. "The distributional consequences of rent‐seeking," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1616-1640, October.
    13. David Amdur & Eylem Ersal Kiziler, 2014. "Trend shocks and the countercyclical U.S. current account," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(2), pages 494-516, May.
    14. Sharma, Abhijit & Sousa, Cristina & Woodward, Richard, 2022. "Determinants of innovation outcomes: The role of institutional quality," Technovation, Elsevier, vol. 118(C).
    15. Tryphon Kollintzas & Dimitris Papageorgiou & Efthymios Tsionas & Vanghelis Vassilatos, 2018. "Market and political power interactions in Greece: an empirical investigation," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 7(1), pages 1-43, December.
    16. Germaschewski, Yin & Horvath, Jaroslav & Rubini, Loris, 2021. "Property rights, expropriations, and business cycles in China," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    17. Vasilev, Aleksandar, 2018. "Optimal fiscal policy in the presence of VAT evasion: the case of Bulgaria," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 68(4), pages 399-414.
    18. Barbosa, Natália & Faria, Ana Paula, 2011. "Innovation across Europe: How important are institutional differences?," Research Policy, Elsevier, vol. 40(9), pages 1157-1169.
    19. Loris Rubini, 2019. "Bribes in the Business Cycles," Review of Economics and Institutions, Università di Perugia, vol. 10(1).
    20. Vasilev Aleksandar, 2021. "A Real-Business-Cycle Model with Institutional Quality: The Case of Bulgaria (1999–2018)," Review of Economics, De Gruyter, vol. 72(1), pages 51-69, April.
    21. Abdelkarim Yahyaoui & Majid Ibrahim Al Saggaf, 2019. "Effects of Financial Development and Institutional Quality on the Economic Growth in The Arabian Gulf states: A Panel Cointegration Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 9(1), pages 203-211.
    22. Hartwell, Christopher A., 2014. "The impact of institutional volatility on financial volatility in transition economies: a GARCH family approach," BOFIT Discussion Papers 6/2014, Bank of Finland Institute for Emerging Economies (BOFIT).
    23. Stylianos G. Gogos & Dimitris Papageorgiou & Vanghelis Vassilatos, 2017. "Rent Seeking Activities and Aggregate Economic Performance - The Case of Greece," Working Papers 201712, Athens University Of Economics and Business, Department of Economics.
    24. Vasilev, Aleksandar, 2013. "Essays on Real Business Cycle Modeling and the Public Sector," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 130522, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Aleksandar Vasilev, 2013. "On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework," Working Papers 2013_20, Business School - Economics, University of Glasgow.
    2. Konstantinos Angelopoulos & George Economides, 2008. "Fiscal policy, rent seeking, and growth under electoral uncertainty: theory and evidence from the OECD," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 41(4), pages 1375-1405, November.
    3. Vasilev, Aleksandar, 2013. "Essays on Real Business Cycle Modeling and the Public Sector," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 130522, September.
    4. Germaschewski, Yin & Horvath, Jaroslav & Rubini, Loris, 2021. "Property rights, expropriations, and business cycles in China," Journal of Economic Dynamics and Control, Elsevier, vol. 125(C).
    5. Natkhov, T. & Polishchuk, L., 2017. "Political Economy of Institutions and Development: The Importance of Being Inclusive. Reflection on "Why Nations Fail" by D. Acemoglu and J. Robinson. Part I. Institutions and Economic Devel," Journal of the New Economic Association, New Economic Association, vol. 34(2), pages 12-38.
    6. Konstantinos Angelopoulos & Apostolis Philippopoulos & Vanghelis Vassilatos, 2006. "Rent-Seeking Competition from State Coffers: A Calibrated DSGE Model of the Euro Area," CESifo Working Paper Series 1644, CESifo.
    7. Vasilev, Aleksandar, 2021. "A Real-Business-Cycle model with institutional quality: The Case of Bulgaria (1999-2018)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    8. Delgado, Michael S. & McCloud, Nadine & Kumbhakar, Subal C., 2014. "A generalized empirical model of corruption, foreign direct investment, and growth," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 298-316.
    9. Kerekes, Carrie B. & Williamson, Claudia R., 2008. "Unveiling de Soto's mystery: property rights, capital formation, and development," Journal of Institutional Economics, Cambridge University Press, vol. 4(3), pages 299-325, December.
    10. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    11. Harashima, Taiji, 2017. "Should a Government Fiscally Intervene in a Recession and, If So, How?," MPRA Paper 78053, University Library of Munich, Germany.
    12. Acemoglu, Daron & Johnson, Simon & Robinson, James A., 2005. "Institutions as a Fundamental Cause of Long-Run Growth," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 6, pages 385-472, Elsevier.
    13. Roberto Ricciuti & Antonio Savoia & Kunal Sen, 2019. "What determines administrative capacity in developing countries?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 26(5), pages 972-998, October.
    14. Minh Tam Schlosky & Andrew Young, 2017. "Can foreign aid motivate institutional reform? An evaluation of the HIPC Initiative," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 6(2), pages 242-258, August.
    15. Mina Baliamoune-Lutz, 2007. "Entrepreneurship, Reforms, and Development: Empirical Evidence," ICER Working Papers 38-2007, ICER - International Centre for Economic Research.
    16. Levon Barseghyan & Riccardo DiCecio, 2010. "Institutional causes of output volatility," Review, Federal Reserve Bank of St. Louis, vol. 92(May), pages 205-224.
    17. Williamson, Claudia R., 2012. "Dignity and development," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(6), pages 763-771.
    18. Young, Andrew T. & Sheehan, Kathleen M., 2014. "Foreign aid, institutional quality, and growth," European Journal of Political Economy, Elsevier, vol. 36(C), pages 195-208.
    19. Ahmet Faruk Aysan & …mer Faruk Baykal & Marie-Ange Véganzonès–Varoudakis, 2011. "The Effects of Convergence in Governance on Capital Accumulation in the Black Sea Economic Cooperation Countries," Chapters, in: Mehmet Ugur & David Sunderland (ed.), Does Economic Governance Matter?, chapter 6, Edward Elgar Publishing.
    20. Ahmet Faruk AYSAN & Mustapha Kamel NABLI & Marie‐Ange VÉGANZONÈS‐VAROUDAKIS, 2007. "Governance Institutions And Private Investment: An Application To The Middle East And North Africa," The Developing Economies, Institute of Developing Economies, vol. 45(3), pages 339-377, September.

    More about this item

    Keywords

    Economic fluctuations; Institutions; Property rights;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • D7 - Microeconomics - - Analysis of Collective Decision-Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:issued:09-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christian Zimmermann (email available below). General contact details of provider: https://edirc.repec.org/data/sedddea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.