Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development
IMF Working Papers, November 1, 2002
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- Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development
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Bibliographic details
- Authors: Arvind Subramanian, Francesco Trebbi, Dani Rodrik
- Published: November 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859621.001
Summary
- We estimate the respective contributions of institutions, geography, and trade in determining cross-country income levels using recently developed instruments for institutions and trade.
- Our results indicate that the quality of institutions "trumps" everything else.
- Controlling for institutions, geography have at best weak direct effects on incomes, although it has a strong indirect effect through institutions.
- Controlling for institutions, trade has a negative, albeit, insignificant direct effect on income, although trade too has a positive effect on institutional quality.
- We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.
Key findings and quantitative attributes
- Institutions are identified as the primary determinant of cross-country income levels; institutional quality "trumps" geography and trade.
- Geography:
- At best weak direct effects on incomes when controlling for institutions.
- Strong indirect effect on incomes through institutions.
- Trade:
- Controlling for institutions, trade shows a negative, albeit insignificant, direct effect on income.
- Trade has a positive effect on institutional quality.
- Publication metadata (as reported on the page):
- Pages: 46
- Volume: 2002
- Issue: 189
- Series: Working Paper No. 2002/189
- DOI: https://doi.org/10.5089/9781451859621.001
- ISBN: 9781451859621
- ISSN: 1018-5941
Methodology and literature context
- Empirical approach:
- Use of recently developed instruments for institutions and trade to estimate their respective contributions to cross-country income levels.
- Comparative analysis:
- Results are related to recent literature.
- Differences with other studies are traced to choices on samples, specification, and instrumentation.
Policy implications and interpretation
- Prioritize improvements in institutional quality to raise cross-country income levels, as institutions exert the dominant influence relative to geography and trade.
- Recognize that geography may influence income indirectly by shaping institutional development.
- Consider that trade liberalization alone, absent institutional improvements, may not directly raise income and may show insignificant or negative direct effects when institutions are controlled for; however, trade can contribute positively to institutional quality.
Institutions Rule: The Primacy of Institutions over Integration and Geography in Economic Development — Arvind Subramanian, Francesco Trebbi, Dani Rodrik; November 1, 2002 (IMF Working Paper).