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Stylized facts of governance, institutions and economic development. Exploring the institutional profiles database

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  • Verspagen, Bart

    () (UNU-MERIT / MGSOG, and School of Business and Economics, Maastricht University)

Abstract

The empirical literature on economic growth agrees that institutions and governance are important determinants of long-run economic growth rates. As a stylized fact, this literature points to a strong correlation between the level of GDP per capita and the general development level of institutions and governance. However, the growth rate of GDP per capita itself, as well as other indicators that are broadly associated with the level of economic development, are generally much less strongly correlated with the level of institutional development. We document these correlations, and argue that there is a need for a broader set of stylized facts about institutions, governance and economic development, covering the broader set of economic indicators, including the growth rate itself. To find such stylized facts, we use canonical correlation analysis. We use a database on institutions and governance that has a very large number of indicators, and our analysis produces a number of aggregated measurements of institutions and governance that broadly correlate with patterns of economic development. The analysis confirms the correlation between the general level of economic development on the one hand, and institutional development on the other hand, which is the core stylized fact identified in the literature. In addition to this, our analysis points to the general attitude towards markets, and the level of financial development as specific dimensions of the institutional and governance characteristics of a country that correlate highly with specific development patterns. In particular, we find that a positive attitude towards markets combined with a low level of financial development goes together with growth rates, based on catching-up. We also find that a tendency towards market steering combined with strong financial development goes together with a high involvement in international trade (openness), combined with a low investment rate.

Suggested Citation

  • Verspagen, Bart, 2012. "Stylized facts of governance, institutions and economic development. Exploring the institutional profiles database," MERIT Working Papers 036, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  • Handle: RePEc:unm:unumer:2012036
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    File URL: https://www.merit.unu.edu/publications/wppdf/2012/wp2012-036.pdf
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    References listed on IDEAS

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    1. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    2. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    3. repec:mes:challe:v:33:y:1990:i:4:p:57-59 is not listed on IDEAS
    4. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    5. Abramovitz, Moses, 1986. "Catching Up, Forging Ahead, and Falling Behind," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 385-406, June.
    6. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
    7. Crombrugghe, Denis de & Farla, Kristine, 2012. "Preliminary conclusions on institutions and economic performance," MERIT Working Papers 035, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    8. Fagerberg, Jan & Srholec, Martin & Verspagen, Bart, 2010. "Innovation and Economic Development," Handbook of the Economics of Innovation, Elsevier.
    9. Mario Cimoli & André A. Hofman & Nanno Mulder (ed.), 2010. "Innovation and Economic Development," Books, Edward Elgar Publishing, number 13996, June.
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    Cited by:

    1. Bhupatiraju S., 2014. "The geographic dimensions of institutions," MERIT Working Papers 086, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    institutions; governance; economic development;

    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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