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Endogenous Institutions and Economic Outcomes

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  • Guerriero, Carmine

Abstract

This paper evaluates the relative importance of a "culture of cooperation," understood as the implicit reward from cooperating in prisoner's dilemma and investment types of activities, and "inclusive political institutions," which enable the citizenry to check the executive authority. I divide Europe into 120 km X 120 km grid cells, and I exploit exogenous variation in both institutions driven by persistent medieval history. To elaborate, I document strong first-stage relationships between present-day norms of trust and respect and the severity of consumption risk-i.e., climate volatility-over the 1000-1600 period and between present-day regional political autonomy and the factors that raised the returns on elite-citizenry investments in the Middle Ages, i.e., the terrain ruggedness and the direct access to the coast. Using this instrumental variables approach, I show that only culture has a first order effect on development, even after controlling for country fixed effects, medieval innovations, the present-day role of medieval geography, and the factors modulating the impact of institutions. Crucially, the excluded instruments have no direct impact on development, and the effect of culture holds within pairs of adjacent grid cells with different medieval climate volatility. An explanation for these results is that culture, but not a more inclusive political process, is necessary to produce public-spirited politicians and push voters to punish political malfeasance. Micro-evidence from Italian Parliament data supports this idea.

Suggested Citation

  • Guerriero, Carmine, 2013. "Endogenous Institutions and Economic Outcomes," MPRA Paper 70879, University Library of Munich, Germany, revised 21 Jan 2015.
  • Handle: RePEc:pra:mprapa:70879
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Medieval History and its Relevance to Modern Business
      by bbatiz in NEP-HIS blog on 2016-06-17 13:10:50

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    Cited by:

    1. d'Agostino, Giorgio & Scarlato, Margherita, 2016. "Institutions, Innovation and Economic Growth in European Countries," MPRA Paper 72427, University Library of Munich, Germany.
    2. Guerriero, Carmine & de Oliveira, Guilherme, 2014. "Extractive States: The Case of the Italian Unification," MPRA Paper 70916, University Library of Munich, Germany, revised 13 Apr 2016.
    3. Guerriero, Carmine & Boranbay, Serra, 2012. "Endogenous (In)Formal Institutions," MPRA Paper 71028, University Library of Munich, Germany, revised 22 Apr 2016.

    More about this item

    Keywords

    Geography; Culture; Democracy; Development; Political Accountability.;

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H1 - Public Economics - - Structure and Scope of Government
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Z1 - Other Special Topics - - Cultural Economics

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