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Growth, Institutions and Productivity: An empirical analysis using the Bayesian approach

Author

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  • Luoma, Arto
  • Luoto, Jani
  • Siivonen, Erkki

Abstract

In this paper we explore how the environment offered by institutions influences long-run growth. In order for the estimation results to be trustworthy we control the reliability of the estimates in several ways. Firstly, we include the lagged level of output per worker in the model to control the effect of conditional convergence. Secondly, we use the production function theory to form an environment of other inputs which may affect the parameter value of institutions and handle the issue of endogeneity using convenient instruments for institutions and other inputs. Thirdly, we use institutional indicator which is built using 18 indicators which all reflect the ability of institutions to create an environment in which the citizens can manage their risks they encounter during their life time. Finally, we study the sensitivity of estimation and control the effect of outliers and bad quality of data using a subsample of 22 industrial countries in addition to the total sample of 86 non-oil countries. Our cross-country analysis - based on Bayesian inference - confirms that the production environment offered by institutions has a significant role on economic growth, but it does not seem as dramatical as some may have expected.

Suggested Citation

  • Luoma, Arto & Luoto, Jani & Siivonen, Erkki, 2003. "Growth, Institutions and Productivity: An empirical analysis using the Bayesian approach," Research Reports 104, VATT Institute for Economic Research.
  • Handle: RePEc:fer:resrep:104
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    File URL: https://www.doria.fi/handle/10024/148563
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    References listed on IDEAS

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    1. 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, Oxford University Press, vol. 114(1), pages 83-116.
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    5. 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.
    6. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
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    12. 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, Oxford University Press, vol. 117(4), pages 1231-1294.
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    18. repec:rus:hseeco:72137 is not listed on IDEAS
    19. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817.
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    Cited by:

    1. Järviö, Maija-Liisa & Luoma, Kalevi & Räty, Tarmo & Aaltonen, Juho, 2005. "Productivity and its Drivers in Finnish Primary Care 1988-2003," Research Reports 118, VATT Institute for Economic Research.
    2. Antipin, Jan-Erik & Mavrotas, George, 2006. "On the Empirics of Aid and Growth: A Fresh Look," WIDER Working Paper Series 005, World Institute for Development Economic Research (UNU-WIDER).

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