Investing in Institutions

27 Pages Posted: 4 Oct 2010

See all articles by Ryan A. Compton

Ryan A. Compton

University of Manitoba

Daniel Giedeman

Grand Valley State University - Department of Economics

Noel D. Johnson

George Mason University - Department of Economics; George Mason University - Mercatus Center

Abstract

Robust institutional change is difficult to achieve. However, it is more difficult for some countries than others. We use data on 69 countries between 1870 and 2000 to show that political instability does not always affect growth outcomes. We then develop a simple model to explain this fact in which the likelihood that “good” institutions are abandoned during periods of political uncertainty depends on the opportunity cost of doing so. We operationalize our model by using contract intensive money as a proxy for this initial investment in growth-enhancing institutions. Cross-sectional and panel growth regressions support the model's predictions.

Suggested Citation

Compton, Ryan A. and Giedeman, Daniel and Johnson, Noel D., Investing in Institutions. Economics & Politics, Vol. 22, Issue 3, pp. 419-445, November 2010, Available at SSRN: https://ssrn.com/abstract=1684885 or http://dx.doi.org/10.1111/j.1468-0343.2010.00370.x

Ryan A. Compton (Contact Author)

University of Manitoba ( email )

501 Fletcher Argue Bldg
Winnipeg, Manitoba R3R3B1
Canada

HOME PAGE: http://home.cc.umanitoba.ca/~compton

Daniel Giedeman

Grand Valley State University - Department of Economics ( email )

478c DeVos Center
Grand Rapids, MI 49504
United States

Noel D. Johnson

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

George Mason University - Mercatus Center

3434 Washington Blvd., 4th Floor
Arlington, VA 22201
United States

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