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Further Unbundling Institutions

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  • Braunfels, Elias

    () (Dept. of Economics, Norwegian School of Economics and Business Administration)

Abstract

This paper analyzes the effects of institutions on economic development, and focuses on separating political institutions from contracting and economic institutions. For a sample of former European colonies, I find that differences in income levels are strongly a ected by political institutions, which regulate political accountability and constrain political elites. There is some evidence for a positive e ect of economic institutions, which protect property rights, but no evidence for positive e ects of contracting institutions, which facilitate contracting among individuals. A decomposition of GDP reveals that political institutions work through the channel of physical and human Capital accumulation. Economic institutions have a positive impact on total factor productivity. To identify and unbundle effects, I exploit exogenous variation in each of the three institutions using instrumental variables based on Colonial history and geographic endowments. The application of a recently developed test for weak instruments in the multiple endogenous variables setting shows that the e ects of institutions can be separated. The paper adds to the literature by identifying the fundamental importance of political institutions for economic development, and provides an inside into the channels through which speci c institutions a ect income levels.

Suggested Citation

  • Braunfels, Elias, 2016. "Further Unbundling Institutions," Discussion Paper Series in Economics 13/2016, Norwegian School of Economics, Department of Economics.
  • Handle: RePEc:hhs:nhheco:2016_013
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    File URL: https://brage.bibsys.no/xmlui/handle/11250/2413514
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    More about this item

    Keywords

    Institutions; Economic Development; Political Economy; Property Rights; Checks and Balances;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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