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Geography Matters More: Geographical and Institutional Determinants of Income in Brazilian States

  • Llussa, Fernanda

Brazil displays a geographic and institutional diversity unique in the world. It extends in a north-south direction rather than the east-west of other countries of similar size. Given the current debate on the relative role of geography and institutions in determining income levels, Brazil provides a single testing ground for the direct and indirect e¤ects of ge- ography. This paper evaluates how much of the income di¤erences across Brazilian regions and states stem from geographic characteristics and in- stitutional characteristics, the latter in turn partly determined by geogra- phy. Our results show, ?rst, that the rate of convergence of state income per capita increases substantially once regional e¤ects are taken into ac- count. Second, institutions, when instrumented with regional dummies, are a signi?cant determinant of state income levels. However, when we add additional geographic characteristics, some institutions cease to signif- icantly a¤ect income. The message from Brazilian data seems to be that, tough geography and institutions matter for income, geography matters more.

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Paper provided by Universidade Nova de Lisboa, Faculdade de Economia in its series FEUNL Working Paper Series with number wp517.

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Length: 27 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:unl:unlfep:wp517
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