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The geographic dimensions of institutions

Author

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  • Bhupatiraju S.

    (UNU-MERIT)

Abstract

In this paper we examine the role of institutions relative to economic performance, absolute geography and financial performance of a country. In order to do this, we use the spatial principal component analysis and a spatial canonical correlation analysis to obtain multi-dimensional measure of institutions, economic performance, absolute geography and financial performance of countries. Our analysis shows that the first canonical functions in all the cases give us results that conform to current literature. That is, we find that a higher level of development is correlated to a higher level of institutional quality, deeper financial structure as well as good geography of the Jeffery Sachs variety. From the second canonical functions we find that economic growth is correlated to market steering. We further find that geographic conditions need not define the institutional set up of countries. A similar institutional set up need not result in a similar financial structure in countries. We show that there is a necessity to take spatial interactions with neighbouring countries into account while analysing the relationships between institutions, geography, economic and financial performance of a country. We find that space indeed has a strong influence on the prevailing institutional and economic conditions of countries. While the impact of space on geography is very obvious, we find that it has no bearing on the financial performance of countries.

Suggested Citation

  • 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).
  • Handle: RePEc:unm:unumer:2014086
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    File URL: https://www.merit.unu.edu/publications/wppdf/2014/wp2014-086.pdf
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    References listed on IDEAS

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    1. 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.
    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.
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    4. Andrew D. Mellinger & Jeffrey D. Sachs & John L. Gallup, 1999. "Climate, Water Navigability, and Economic Development," CID Working Papers 24, Center for International Development at Harvard University.
    5. 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).
    6. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    7. Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth : revisiting the evidence," Policy Research Working Paper Series 3004, The World Bank.
    8. Bhupathiraju, Samyukta & Verspagen, Bart & Ziesemer, Thomas, 2013. "Summarizing large spatial datasets: Spatial principal components and spatial canonical correlation," MERIT Working Papers 011, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
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    11. Easterly, William & Levine, Ross, 2003. "Tropics, germs, and crops: how endowments influence economic development," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 3-39, January.
    12. Jeffrey D. Sachs, 2003. "Institutions Don't Rule: Direct Effects of Geography on Per Capita Income," NBER Working Papers 9490, National Bureau of Economic Research, Inc.
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    More about this item

    Keywords

    Economic Development; Financial Markets; Saving and Capital Investment; Corporate Finance and Governance; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements; Institutions and Growth; Regional Economic Activity; Econometric Models;

    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
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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