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Institutions, Human Capital and Development

  • Daron Acemoglu
  • Francisco Gallego

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

  • James A. Robinson

In this paper we revisit the relationship between institutions, human capital and development. We argue that empirical models that treat institutions and human capital as exogenous are misspecified both because of the usual omitted variable bias problems and because of differential measurement error in these variables, and that this misspecification is at the root of the very large returns of human capital, about 4 to 5 times greater than that implied by micro (Mincerian) estimates, found in some of the previous literature. Using cross-country and cross-regional regressions, we show that when we focus on historically-determined differences in human capital and control for the effect of institutions, the impact of institutions on long-run development is robust, while the estimates of the effect of human capital are much diminished and become consistent with micro estimates. Using historical and cross-country regression evidence, we also show that there is no support for the view that differences in the human capital endowments of early European colonists have been a major factor in the subsequent institutional development of these polities.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 449.

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Date of creation: 2014
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Handle: RePEc:ioe:doctra:449
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  1. Naritomi, Joana & Soares, Rodrigo R. & Assunção, Juliano J., 2009. "Institutional Development and Colonial Heritage within Brazil," IZA Discussion Papers 4276, Institute for the Study of Labor (IZA).
  2. Gregory Clark, 2005. "The Condition of the Working Class in England, 1209-2004," Journal of Political Economy, University of Chicago Press, vol. 113(6), pages 1307-1340, December.
  3. Lakshmi Iyer, 2005. "Direct versus Indirect Colonial Rule in India: Long-term Consequences," Harvard Business School Working Papers 05-041, Harvard Business School, revised Nov 2008.
  4. Antonio Ciccone & Giovanni Peri, 2006. "Identifying Human-Capital Externalities: Theory with Applications," Review of Economic Studies, Oxford University Press, vol. 73(2), pages 381-412.
  5. Stanley L. Engerman & Kenneth L. Sokoloff, 2011. "Economic Development in the Americas since 1500: Endowments and Institutions," NBER Books, National Bureau of Economic Research, Inc, number enge11-1, December.
  6. Francisco Gallego, 2008. "Historical Origins of Schooling: The Role of Democracy and Political Decentralization," Documentos de Trabajo 342, Instituto de Economia. Pontificia Universidad Católica de Chile..
  7. Daron Acemoglu, 2005. "Politics and Economics in Weak and Strong States," NBER Working Papers 11275, National Bureau of Economic Research, Inc.
  8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  9. Daron Acemoglu & Camilo García-Jimeno & James A. Robinson, 2012. "Finding Eldorado: Slavery and Long-run Development in Colombia," NBER Working Papers 18177, National Bureau of Economic Research, Inc.
  10. Nathan Nunn, 2010. "Religious Conversion in Colonial Africa," American Economic Review, American Economic Association, vol. 100(2), pages 147-52, May.
  11. Michalopoulos, Stelios & Papaioannou, Elias, 2012. "Pre-colonial Ethnic Institutions and Contemporary African Development," CEPR Discussion Papers 9068, C.E.P.R. Discussion Papers.
  12. Francisco Gallego & Robert Woodberry, 2008. "Christian Missionaries and Education in Former Colonies: How Institutions Mattered," Documentos de Trabajo 339, Instituto de Economia. Pontificia Universidad Católica de Chile..
  13. Moretti, Enrico, 2004. "Estimating the social return to higher education: evidence from longitudinal and repeated cross-sectional data," Journal of Econometrics, Elsevier, vol. 121(1-2), pages 175-212.
  14. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  15. Miriam Bruhn & Francisco A. Gallego, 2012. "Good, Bad, and Ugly Colonial Activities: Do They Matter for Economic Development?," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 433-461, May.
  16. Anna Mikusheva & Brian P. Poi, 2006. "Tests and confidence sets with correct size when instruments are potentially weak," Stata Journal, StataCorp LP, vol. 6(3), pages 335-347, September.
  17. Daron Acemoglu & Suresh Naidu & Pascual Restrepo & James A. Robinson, 2014. "Democracy Does Cause Growth," NBER Working Papers 20004, National Bureau of Economic Research, Inc.
  18. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, March.
  19. Ewout H.P. Frankema, 2012. "The origins of formal education in sub-Saharan Africa: was British rule more benign?," European Review of Economic History, Oxford University Press, vol. 16(4), pages 335-355, November.
  20. 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, MIT Press, vol. 117(4), pages 1231-1294, November.
  21. Francisco Gallego & Robert Woodberry, 2009. "Christian Missionaries and Education in Former African Colonies: How Competition Mattered," Working Papers ClioLab 2, EH Clio Lab. Instituto de Economía. Pontificia Universidad Católica de Chile.
  22. Willa Friedman & Michael Kremer & Edward Miguel & Rebecca Thornton, 2011. "Education as Liberation?," NBER Working Papers 16939, National Bureau of Economic Research, Inc.
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