Institutions and Economic Development: New Measurements and Evidence

35 Pages Posted: 4 Nov 2021

See all articles by Esther Nuamah

Esther Nuamah

Universidad de Alicante

Lorenzo Carbonari

Università di Roma "Tor Vergata"

Alessio Farcomeni

affiliation not provided to SSRN

Giovanni Trovato

University of Rome Tor Vergata - Faculty of Economics

Date Written: November 3, 2021

Abstract

We propose a new set of indices to capture the multidimensionality of a country's institutional quality. Our indices are obtained by employing a dimension reduction approach on the institutional variables provided by the Frazer Institute (2018). We estimate the impact that our measures of institutional quality have on the level and the growth rate of per capita GDP, using a large sample of countries over the period 1980-2015. To identify the causal effect of our measures of institutional quality on a country's GDP dynamics we employ the Generalized Propensity Score method. Institutions matter especially in low and middle-income countries, and not all institutions are alike for economic development. For this group of countries, we find: i) a positive correlation between our main institutional index and the GDP growth and ii) that improvement in the reliability and fairness of the legal system leads to a higher long-run per capita GDP level. We also document non-linearities in the causal effects that different institutions have on growth, and the presence of threshold effects.

Keywords: Economic Development, Institutions, Threshold Effects, Mixture Model, High- income countries, Low- and middle-income countries.

JEL Classification: O43, O47

Suggested Citation

Nuamah, Esther and Carbonari, Lorenzo and Farcomeni, Alessio and Trovato, Giovanni, Institutions and Economic Development: New Measurements and Evidence (November 3, 2021). CEIS Working Paper No. 521, Available at SSRN: https://ssrn.com/abstract=3955871 or http://dx.doi.org/10.2139/ssrn.3955871

Esther Nuamah (Contact Author)

Universidad de Alicante ( email )

Campus de San Vicente
Carretera San Vicente del Raspeig
San Vicente del Raspeig, Alicante 03690
Spain

HOME PAGE: http://www.estheracquah.com

Lorenzo Carbonari

Università di Roma "Tor Vergata" ( email )

Via Columbia 2
Roma, Lazio 00133
Italy

Alessio Farcomeni

affiliation not provided to SSRN

No Address Available

Giovanni Trovato

University of Rome Tor Vergata - Faculty of Economics ( email )

Via Columbia n.2
Rome, rome 00100
Italy

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