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Does investment spur growth everywhere? Not where institutions are weak

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  • Thibaut Dort
  • Pierre-Guillaume Méon
  • Khalid Sekkat

Abstract

We investigate the impact of investment on growth in a sample of 85 developed and developing countries over 1984-2009, conditioning the marginal effect of investment on institutional quality. The panel structure of our dataset allows controlling for unobserved heterogeneity and dealing with the risk of endogeneity bias. We find that investment increases growth more in countries with high institutional quality than in countries with defective institutions. The results are robust to estimating the model separately for developed and developing countries, for each continent, and over two sub-periods. A jackknife experiment shows that they do not depend on any single country. The results are essentially driven by the quartiles of countries with the lowest and the highest institutional quality, and by the Government instability, Corruption, and Rule of law sub-components of the ICRG index.

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  • Thibaut Dort & Pierre-Guillaume Méon & Khalid Sekkat, 2014. "Does investment spur growth everywhere? Not where institutions are weak," Post-Print CEB, ULB -- Universite Libre de Bruxelles, vol. 67(4), pages 482-505, October.
  • Handle: RePEc:sol:spaper:2013/184273
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    More about this item

    Keywords

    growth; investment; institutions;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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