Institutions Rule: The Primacy of Institutions Over Integration and Geography in Economic Development

Rodrik, Dani; Subramanian, Arvind; Trebbi, Francesco

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Institutions Rule: The Primacy of Institutions Over Integration and Geography in Economic Development

IMF Working Paper No. 02/189

47 Pages Posted: 6 Feb 2006

See all articles by Dani Rodrik

Dani Rodrik

Harvard University - Harvard Kennedy School (HKS); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Arvind Subramanian

International Monetary Fund (IMF); Center for Global Development

Francesco Trebbi

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Date Written: November 2002

Abstract

We estimate the respective contributions of institutions, geography, and trade in determining cross-country income levels using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions 'trumps' everything else. Controlling for institutions, geography have at best weak direct effects on incomes, although it has a strong indirect effect through institutions. Similarly, controlling for institutions, trade has a negative, albeit, insignificant direct effect on income, although trade too has a positive effect on institutional quality. We relate our results to recent literature, and where differences exist, trace their origins to choices on samples, specification, and instrumentation.

Keywords: Institutions, integration, geography, development

JEL Classification: F15, O11, P16, P51

Suggested Citation: Suggested Citation

Rodrik, Dani and Subramanian, Arvind and Trebbi, Francesco, Institutions Rule: The Primacy of Institutions Over Integration and Geography in Economic Development (November 2002). IMF Working Paper No. 02/189, Available at SSRN: https://ssrn.com/abstract=880291