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Institutions Rule; The Primacy of Institutions Over Integration and Geography in Economic Development

  • Arvind Subramanian
  • Francesco Trebbi
  • Dani Rodrik

We estimate the respective contributions of institutions, geography, and trade in determining cross-country income levels using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions "trumps" everything else. Controlling for institutions, geography have at best weak direct effects on incomes, although it has a strong indirect effect through institutions. Similarly, controlling for institutions, trade has a negative, albeit, insignificant direct effect on income, although trade too has a positive effect on institutional quality. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/189.

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Length: 46
Date of creation: 01 Nov 2002
Date of revision:
Handle: RePEc:imf:imfwpa:02/189
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  1. William Easterly & Ross Levine, 2002. "Tropics, Germs, and Crops: How Endowments Influence Economic Development," NBER Working Papers 9106, National Bureau of Economic Research, Inc.
  2. Masters, William A. & McMillan, Margaret S., 2001. "Climate And Scale In Economic Growth," Miscellaneous Papers 11845, Agecon Search.
  3. Douglas A. Irwin & Marko Tervio, 2000. "Does Trade Raise Income? Evidence from the Twentieth Century," NBER Working Papers 7745, National Bureau of Economic Research, Inc.
  4. Alcala, Francisco & Ciccone, Antonio, 2001. "Trade and Productivity," CEPR Discussion Papers 3095, C.E.P.R. Discussion Papers.
  5. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert Vishny, 1998. "The Quality of Goverment," NBER Working Papers 6727, National Bureau of Economic Research, Inc.
  6. 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.
  7. Jeffrey D. Sachs, 2001. "Tropical Underdevelopment," NBER Working Papers 8119, National Bureau of Economic Research, Inc.
  8. Joshua D. Angrist & Alan B. Krueger, 1990. "Does Compulsory School Attendance Affect Schooling and Earnings?," NBER Working Papers 3572, National Bureau of Economic Research, Inc.
  9. Mukand, Sharun & Rodrik, Dani, 2002. "In Search of the Holy Grail: Policy Convergence, Experimentation and Economic Performance," Working Paper Series rwp02-027, Harvard University, John F. Kennedy School of Government.
  10. Stanley L. Engerman & Kenneth L. Sokoloff, 1994. "Factor Endowments: Institutions, and Differential Paths of Growth Among New World Economies: A View from Economic Historians of the United States," NBER Historical Working Papers 0066, National Bureau of Economic Research, Inc.
  11. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
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