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Geographic And Institutional Determinants Of Real Income:A Spatio-Temporal Simultaneous Equation Approach

  • Guyslain K. Ngeleza

    ()

  • Raymond J.G.M. Florax

    ()

  • William A. Masters

    ()

    (Department of Agricultural Economics, College of Agriculture, Purdue University)

This paper tests a series of prominent hypotheses regarding the determinants of per-capita income using a novel spatial econometric approach to control for spillovers among neighboring countries and for spatially correlated omitted variables. We use simultaneous equations to identify alternative channels through which country characteristics might affect income, and then test the robustness of those effects. We find support for both “institutionalist” and “geographic” determinants of income. A time-varying index of institutional quality has a strong independent effect on current income, but there is also a persistent effect of geographic factors such as seasonal frost, malaria transmission, and coastal location, which influence income through their links to agricultural output, health, urbanization and trade. The data cover 95 countries across the world from 1960 through 2002, which we use to construct a pooled dataset of nine 5-year averages centered on 1960, 1965, and so on through 2000. We use both limited and full information estimators, partly based on a generalized moments (GM) estimator for spatial autoregressive coefficients, allowing for spatial error correlation, correlation across equations, and the presence of spatially lagged dependent variables

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Paper provided by Purdue University, College of Agriculture, Department of Agricultural Economics in its series Working Papers with number 06-15.

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Length: pages36
Date of creation: 2006
Date of revision:
Handle: RePEc:pae:wpaper:06-15
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  1. Conley, Timothy G & Ligon, Ethan, 2002. "Economic Distance and Cross-Country Spillovers," Journal of Economic Growth, Springer, vol. 7(2), pages 157-87, June.
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  4. William A. Masters & Margaret S. McMillan, 2000. "Climate and Scale In Economic Growth," CID Working Papers 48, Center for International Development at Harvard University.
  5. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  6. Harry H. Kelejian & Ingmar R. Prucha, 1995. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," Electronic Working Papers 95-001, University of Maryland, Department of Economics, revised Mar 1997.
  7. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
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  14. Kiminori Matsuyama, 1991. "Agricultural Productivity, Comparative Advantage and Economic Growth," NBER Working Papers 3606, National Bureau of Economic Research, Inc.
  15. Carstensen, Kai & Gundlach, Erich, 2005. "The primacy of institutions reconsidered: The effects of malaria prevalence in the empirics of development," Kiel Working Papers 1210, Kiel Institute for the World Economy (IfW).
  16. Bernard Fingleton & Enrique López-Bazo, 2006. "Empirical growth models with spatial effects," Papers in Regional Science, Wiley Blackwell, vol. 85(2), pages 177-198, 06.
  17. 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.
  18. Cho, Dongchul, 1996. "An Alternative Interpretation of Conditional Convergence Results," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 669-81, November.
  19. Jeffrey D. Sachs, 2001. "Tropical Underdevelopment," NBER Working Papers 8119, National Bureau of Economic Research, Inc.
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  21. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
  22. Kelejian, Harry H. & Prucha, Ingmar R., 2004. "Estimation of simultaneous systems of spatially interrelated cross sectional equations," Journal of Econometrics, Elsevier, vol. 118(1-2), pages 27-50.
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