Institutions, Geography and Trade: A Panel Data Study (original) (raw)
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Institutions Don't Rule: Direct Effects of Geography on Per Capita Income
2003
In a series of papers, my colleagues and I have demonstrated that levels of per capita income, economic growth, and other economic and demographic dimensions are strongly correlated with geographical and ecological variables such as climate zone, disease ecology, and distance from the coast. Three recent papers purport to show that the role of geography in explaining crosscountry patterns of income per capita operates predominantly or exclusively through the choice of institutions, with little direct effect of geography on income after controlling for the quality institutions. This note shows that malaria transmission, which is strongly affected by ecological conditions, directly affects the level of per capita income after controlling for the quality of institutions.
Geography, international trade and institutions: an econometric analysis of the BRICS
Carlos Schonerwald, Luiz Michelon, Marcelo Corrêa, 2020
This paper discusses the role of the three deep determinants of economic development (geography, institutions and international trade) in BRICS countries (Brazil, Russia, India, China and South Africa) from 1995 to 2015. First of all, we argue that it is difficult to point out whether or not the determinants work simultaneously, since most authors do not agree with the idea of coordination. Secondly, we raise the viewpoint that institutions are very different among these nations, especially in the case of China, which has improved per capita income without fitting in the standards of the Worldwide Governance Indicators. Third, we briefly present the recent history of the bloc and apply the Hausman and Taylor (1981) method to controls for endogenous as well as time-invariant variables. We conclude that, on the one hand, geography and international trade have been important to explain the economic performance of BRICS countries without challenging the mainstream literature; on the other hand, the influence of institutions, even though relevant, does not correspond with the hypotheses rooted in the literature. China and Russia are countries with particular institutions, so the outcomes do not follow previous results about the role of institutions, suggesting that indicators may be biased toward liberal ideology.
Institutions, Trade and Development: A Quantitative Analysis
SSRN Electronic Journal, 2018
We propose and apply methods to quantify the impact of national institutions on international trade and development. We are able to identify the direct impact of country-specific institutions on international trade within the structural gravity framework. Our approach naturally addresses the prominent issue of endogenous institutions. The empirical analysis offers robust evidence that stronger institutions promote trade. A counterfactual analysis reveals that the changes in institutional quality in the poor countries in our sample between 1996 and 2006 have had, via their impact on imports from rich countries, significant and heterogeneous real GDP effects, varying between-5 and 5 percent. Our methods are readily applicable to identifying the impact of a wide range of country-specific variables on international trade.
The Primacy of Institutions Reconsidered: Direct Income Effects of Malaria Prevalence
World Bank Economic Review, 2006
Some recent empirical studies deny any direct effect of geography on development and conclude that institutions dominate all other potential determinants of development. An alternative view emphasizes that geographic factors such as disease ecology, as proxied by the prevalence of malaria, may have a large negative effect on income, independent of the quality of a country's institutions. For instance, pandemic malaria may create a large economic burden beyond medical costs and forgone earnings by affecting household behavior and such macroeconomic variables as international investment and trade. After controlling for institutional quality, malaria prevalence is found to cause quantitatively important negative effects on income. The robustness of this finding is checked by employing alternative instrumental variables, tests of overidentification restrictions, and tests of the validity of the point estimates and standard errors in the presence of weak instruments. The baseline findings appear to be robust to using alternative specifications, instrumentations, and samples. The reported estimates suggest that good institutions may be necessary but not sufficient for generating a persistent process of successful economic development.
2010
This paper examines the role of long standing institutions -identified through geography, disease ecology, colonial legacy, and some direct measures of political and economic governance -on human development and its non income components across countries. The study employs a novel econometric technique called the Bayesian Model Averaging that allows us to select the relevant predictors by experimenting with a host of competing sets of variables. It constructs estimates as weighted average of OLS estimates for every possible combination of included variables. This is particularly useful in situations when there is model uncertainty and theory provides only a weak guidance on the selection of appropriate predictors. Of the 25 variables that we tried, three stand out in terms of their degree of importance and their robustness across various specifications. These include malaria ecology, KKZ index of good governance and fertility rate. Our finding on the dominant and robust role of malaria ecology in explaining differences in human development across countries, even in the presence of variables that directly and indirectly measure the quality of institutions, is extremely fascinating. It shows that malaria ecology has a direct negative impact on human development and this effect appears to be over and above its effect via institutions. Some of the other measures of climate and geography as well as those of colonial legacy are important as long as we do not control for some direct measures of the performance of political and economic institutions such as the KKZ index of good governance and democracy score. Once we control for these and other conditioning variables such as public spending on health and education; fertility rates; and measures of health infrastructure, the importance of geography and colonial legacy disappears. JEL Classifications: I10; I12; I18; I28
Geography, institutions and export performance
This paper investigates the determinants of countries' export performance looking in particular at the role of international product market linkages. We begin with a novel decomposition of the growth in countries' exports into the contribution from increases in external demand and from improved internal supply-side conditions. The decomposition provides a method for measuring countries' access to foreign markets and of quantifying the extent to which changes in foreign market access are geographically localized. Building on the results of this decomposition, we move on to an econometric analysis of the determinants of export performance. Results include the finding that poor external geography, poor internal geography, and poor institutional quality contribute in approximately equal measure to explaining Sub-Saharan Africa's poor export performance.
External and internal determinants of development
Proceedings, 2006
This paper employs both cross-section and panel data estimation methods to examine the impact of external factors of development, in particular migration and international trade, while controlling for the effects of important internal determinants of per capita income, namely geography and institutions. While the cross-section approach is well established in the empirical development literature, the panel data approach enables us to account for unobserved heterogeneity across countries. We find that the internal measures -institutions and geography -exhibit the expected signs and are typically statistically significant. However, they differ in their economic impact: Institutional measures appear to have large elasticity estimates, while those for geography are rather small. Among the external determinants, the trade measures have the expected signs and are statistically significant in most specifications. The share of foreign born population is positive and significant as well. Interestingly, remittances appear to contribute little to the observed variation in per capita income across countries unless the sample is restricted to the top half of all countries receiving remittances, in which case they too have a positive, statistically significant impact on economic development. JEL: O1, N1, H1, F1
Evidence on economic versus political institutions as determinants of development
2017
A growing body of evidence suggests that institutions are an important causal determinant of economic development, yet there remains considerable debate over which institutions are most important. In this paper, we employ an identification strategy that allows us to simultaneously examine the potential causal impact of economic and political institutions. The results of different instrumental variable estimators strongly suggest that economic institutions, gauged by the Index of Social Infrastructure and by the Economic Freedom of the World Index, are economically and statistically significant determinants of income per capita. However, political institutions, measured by Constraints on the Executive, exert smaller and less discernible statistical impact on development. These findings are robust to the inclusion of confounding factors that potentially influence development such as geography, ethnolinguistic fractionalization, human capital, as well as robust to a number of alternati...
International Trade, Do Institutions Matter? Evidence from Regional Studies
Theoretical Economics Letters, 2014
The study investigates the relationship between trade and institutions across regions using panel data for seven regions for the period 1980 to 2010 (31 years) and general method of moment estimation method (GMM). Consistent with past literature, institutions were found to have a significant effect on trade. Different measures that capture institutions were used, domestic and international institutions were found to be significantly promoting exports across regions and it was concluded that institutions mattered reasonably in the trade promotion discussion. Domestic institutions were protectionist in nature since they increased tariffs on imported goods, while international institutions were probably reducing regional tariffs.