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Institutions, Capital, and Growth

  • Joshua C. Hall

    (Department of Economics and Management, Beloit College)

  • Russell S. Sobel

    (Department of Economics, West Virginia University)

  • George R. Crowley

    (Department of Economics, West Virginia University)

The international development community has encouraged investment in physical and human capital as a precursor to economic progress. Recent evidence shows, however, that increases in capital do not always lead to increases in output. We develop a growth model where the allocation and productivity of capital depends on a country's institutions. We find that increases in physical and human capital lead to output growth only in countries with good institutions. In countries with bad institutions, increases in capital lead to negative growth rates because additions to the capital stock tend to be employed in rent-seeking and other socially unproductive activities.

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Paper provided by Department of Economics, West Virginia University in its series Working Papers with number 10-15.

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Length: 46 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:wvu:wpaper:10-15
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