Institutional Transformation and the Origins of World Income Distribution

Posted: 24 Mar 2017

See all articles by Rok Spruk

Rok Spruk

University of Ljubljana - Faculty of Economics

Date Written: January 6, 2016

Abstract

This paper presents an attempt to quantify institutional changes and examine the respective effects of de jure and de facto political institutions on the path of long-run economic growth and development for a large panel of countries in the period 1810–2000. Using factor analysis, latent indices of de jure and de facto political institutions are constructed by exploiting several existing institutional datasets. The empirical evidence consistently suggests that societies with more extractive political institutions in Latin America, South Asia, Middle East and Eastern Europe have achieved systematically slower long-run economic growth and failed to catch-up with the West. The evidence confirms the primacy of de facto institutional differences over de jure institutions in causing differential growth and development outcomes over time. It also explains why highly concentrated political power and extractive political regimes inhibited the path of economic growth by setting persistent barriers to the engagement in collective action. In the long run, institutional differences account for up to two thirds of within-country development path and up to 83% of between-country development gaps.

Keywords: economic growth, global income inequality, economic development, political economy of institutions

JEL Classification: N10, N90, O43, P16, C55

Suggested Citation

Spruk, Rok, Institutional Transformation and the Origins of World Income Distribution (January 6, 2016). Journal of Comparative Economics, Vol. 44, No. 4, 2016. Available at SSRN: https://ssrn.com/abstract=2940146

Rok Spruk (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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