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Institutions and the Sectoral Organization of Production

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  • Ana Fernandes

Abstract

The impact of economic institutions on development is presently taken for granted but there is surprisingly scarce evidence on the channels through which institutions affect the organization of output. Imperfections in contractual enforcement, for example, could lead firms to adopt technologies that inefficiently minimize dependence on other sectors, thus going hand in hand with a reduction in productivity. Another channel would be the concentration of economic activity in sectors that have fewer interactions with other sectors. Using a dataset on manufacturing, this paper presents empirical evidence supporting both effects: better contractual enforcement raises relatively more the labor share of sectors that interact more with other sectors; further, good governance also boosts relatively more labor productivity in more complex subsectors of manufacturing. Both effects are strongest among countries whose labor productivity ranks in the second and third quartiles of the world productivity distribution and they are mute for the two extreme groups of poor and developed economies.

Suggested Citation

  • Ana Fernandes, 2012. "Institutions and the Sectoral Organization of Production," Diskussionsschriften dp1207, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp1207
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    References listed on IDEAS

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    1. Berthold Herrendorf & Ákos Valentinyi, 2012. "Which Sectors Make Poor Countries So Unproductive?," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 323-341, April.
    2. Costinot, Arnaud, 2009. "On the origins of comparative advantage," Journal of International Economics, Elsevier, vol. 77(2), pages 255-264, April.
    3. Kevin Cowan & Alejandro Neut, 2007. "Intermediate Goods, Institutions and Output per Worker," Working Papers Central Bank of Chile 420, Central Bank of Chile.
    4. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    5. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
    6. Knack, Stephen & Keefer, Philip, 1995. "Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Indicators," MPRA Paper 23118, University Library of Munich, Germany.
    7. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Sectoral organization of output; institutions; contractual enforcement; input-output; complexity;

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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