Institutions and Parameter Heterogeneity

24 Pages Posted: 29 Aug 2006

Date Written: August 21, 2006

Abstract

The role of institutions has taken center stage in the empirical growth literature recently, with many innovative approaches and suggestive results. Most of the previous literature has focused on the direct correlation between institutions and growth or its determinants. In this paper, I investigate the indirect effect that institutions may have on growth through parameter heterogeneity. In particular, the quality of a country's institutions could affect the relationship between growth and its other determinants, such as human and physical capital accumulation, geography, and government policies. After allowing for several types of nonlinearities, the results are generally supportive of Glaeser, La Porta, and Lopez-de-Silanes (2004) in that most of their preferred measures of institutions are not correlated with growth. However, there is some evidence that institutions do matter for policy variables, particularly those associated with trade policy.

Keywords: institutions, growth, parameter heterogeneity

JEL Classification: O4, O17

Suggested Citation

Minier, Jenny, Institutions and Parameter Heterogeneity (August 21, 2006). Available at SSRN: https://ssrn.com/abstract=927275 or http://dx.doi.org/10.2139/ssrn.927275

Jenny Minier (Contact Author)

Miami University ( email )

Department of Statistics
311 Upham Hall100 Bishop Circle
Oxford, OH 45056
United States

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