Institutions, Trade, and Growth: Revisiting the Evidence

Abstract

Several recent papers have attempted to identify the partial effects of trade integration and institutional quality on long-run growth using the geographical determinants of trade and the historical determinants of institutions as instruments. Dollar and Kraay show that many of the specifications in these papers are weakly identified despite the apparently good performance of the instruments in first-stage regressions. Consequently, they argue that the cross-country variation in institutions, trade, and their geographical and historical determinants is not very informative about the partial effects of these variables on long-run growth.

This paper - a product of Investment Climate, Development Research Group - is part of a larger effort in the group to study institutions and development.