The Primacy of Institutions Reconsidered: Direct Income Effects of Malaria Prevalence

Posted: 29 Feb 2008

Date Written: 2006

Abstract

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.

Suggested Citation

Gundlach, Erich, The Primacy of Institutions Reconsidered: Direct Income Effects of Malaria Prevalence ( 2006). The World Bank Economic Review, Vol. 20, Issue 3, pp. 309-339, 2006. Available at SSRN: https://ssrn.com/abstract=1093508 or http://dx.doi.org/10.1093/wber/lhl001

Erich Gundlach

University of Hamburg ( email )

Department of Economics
Von-Melle-Park 5
Hamburg, 20146
Germany
+49 40 428384589 (Phone)

HOME PAGE: http://www.erichgundlach.de

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