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Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development

  • Dani Rodrik
  • Arvind Subramanian
  • Francesco Trebbi

We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions trumps' everything else. Once institutions are controlled for, measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the wrong' (i.e., negative) sign, 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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9305.

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Date of creation: Nov 2002
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Publication status: published as Rodrik, Dani, Arvind Subramanian and Francesco Trebbi. "Institutions Rule: The Primacy Of Institutions Over Geography And Integration In Economic Development," Journal of Economic Growth, 2004, v9(2,Jun), 131-165.
Handle: RePEc:nbr:nberwo:9305
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