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Institutions, Capital, and Growth

Author

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  • Joshua C. Hall

    () (Department of Economics and Management, Beloit College, 700 College Street, Beloit, WI 53511, USA; E-mail)

  • Russell S. Sobel

    () (Department of Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506-6025, USA;)

  • George R. Crowley

    () (Department of Economics, West Virginia University, P.O. Box 6025, Morgantown, WV 26506-6025, USA;)

Abstract

The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country’s institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.

Suggested Citation

  • Joshua C. Hall & Russell S. Sobel & George R. Crowley, 2010. "Institutions, Capital, and Growth," Southern Economic Journal, Southern Economic Association, vol. 77(2), pages 385-405, October.
  • Handle: RePEc:sej:ancoec:v:77:2:y:2010:p:385-405
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    File URL: http://dx.doi.org/10.4284/sej.2010.77.2.385
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    References listed on IDEAS

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    6. Fan Zhang & Joshua Hall & Feng Yao, 2017. "Does Economic Freedom Affect The Production Frontier? A Semiparametric Approach With Panel Data," Working Papers 17-27, Department of Economics, West Virginia University.
    7. Travis Wiseman & Andrew Young, 2011. "Economic Freedom, Entrepreneurship, & Income Levels: Some US State-Level Empirics," Working Papers 11-03, Department of Economics, West Virginia University.
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    10. Joshua C. Hall & Serkan Karadas & Minh Tam T. Schlosky, 2016. "Spatial Spillover Effects of Debt Relief from the Heavily Indebted Poor Countries (HIPC) Initiative," Working Papers 16-23, Department of Economics, West Virginia University.
    11. repec:eee:wdevel:v:96:y:2017:i:c:p:503-519 is not listed on IDEAS
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    16. Usman Khalid, 2016. "Catch-up in Institutional Quality: An Empirical Assessment," Discussion Papers 2016-04, University of Nottingham, CREDIT.
    17. Boris Nikolaev, 2014. "Economic Freedom and Quality of Life: Evidence from the OECD’s Your Better Life Index," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 29(Fall 2014), pages 61-96.
    18. 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.
    19. S. Auci, 2014. "The role of production chains in Italian industry: A steady connection between Italy's North-West and South," Rivista economica del Mezzogiorno, Società editrice il Mulino, issue 3, pages 617-658.
    20. Hugo J. Faria & Hugo M. Montesinos-Yufa & Daniel R. Morales, 2014. "Should the Modernization Hypothesis Survive Acemoglu, Johnson, Robinson, and Yared? Some More Evidence," Econ Journal Watch, Econ Journal Watch, vol. 11(1), pages 17-36, January.
    21. Walden, Michael L., 2014. "Recovery from the Great Recession: Explaining Differences Among the States," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 44(2).
    22. Glass, Anthony J. & Kenjegalieva, Karligash & Ajayi, Victor & Adetutu, Morakinyo & Sickles, Robin C., 2016. "Relative Winners and Losers from Efficiency Spillovers in Africa with Policy Implications for Regional Integration," Working Papers 16-003, Rice University, Department of Economics.
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    More about this item

    JEL classification:

    • B53 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Austrian
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • I2 - Health, Education, and Welfare - - Education

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