Unbundling the roles of human capital and institutions in economic development

Faría, Hugo J.; Montesinos-Yufa, Hugo M.; Morales, Daniel R.; Navarro, Carlos E.

doi:10.1016/j.ejpoleco.2016.08.001

Cited by 56 publications

(15 citation statements)

References 48 publications

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“…find that after allowing for historical differences determining human capital and institutions, the latter exerts a robust first order impact on development whereas, human capital estimates are either not significant or of a small magnitude. Faria et al (2016) find similar results in a horse race between human capital and EFW.…”

Section: As Indicated Insupporting

confidence: 86%

“…This finding is consistent with the view that human capital impacts economic development indirectly by promoting better institutions (Galor, 2011;Galor et al, 2009). More importantly, and consistent with the results of Faria et al (2016), EFW remains positive and highly statistically significant as a predictor of economic development, and the coefficient changes only modestly relative to the baseline. The two instruments remain positive in the first-stage, and although only the interactive term is statistically significant at conventionally acceptable levels, F (WID) = 13.7, which lays between the critical values for the s thresholds of 5 and 10%.…”

Section: Models 2-4 Insupporting

confidence: 85%

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Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

et al. 2017

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Existing literature suggests that either colonial settlement conditions or the identity of colonizer were influential in shaping the post-colonial institutional environment, which in turn has impacted long-run economic development. These two potential identification strategies have been treated as substitutes. We argue that the two factors should instead be treated as complementary and develop an alternative and unified IV approach that simultaneously accounts for both settlement conditions and colonizer identity to estimate the potential causal impact of a broad cluster of economic institutions on log real GDP per capita for a sample of former colonies. Using population density in 1500 as a proxy for settlement conditions, we find that the impact of settlement conditions on institutional development is much stronger among former British colonies than colonies of the other major European colonizers. Conditioning on several geographic factors and ethno-linguistic fractionalization, our baseline 2SLS estimates suggest that a standard deviation increase in economic institutions is associated with a three-fourth standard deviation increase in economic development. Our results are robust to a number of additional control variables, country subsample exclusions, and alternative measures of institutions, GDP, and colonizer classifications. We also find evidence that geography exerts both an indirect and direct effect on economic development.

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Section: As Indicated Insupporting

confidence: 86%

Section: Models 2-4 Insupporting

confidence: 85%

Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

et al. 2017

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“…Organizations such as the Fraser Institute annually publish indexes of economic freedom, distinguishing aspects such as low government spending, protection of property rights, sound money, free trade, and low regulatory stringency. Various studies have argued that free markets and competition stimulate income per capita or economic growth and have found a positive relationship (De Haan et al 2006;Justesen 2008;Graafland and Compen 2015;Faria et al 2016;Murphy 2016;Murphy and O'Reilly 2018;Spruk and Kešeljević 2018). Other studies have argued that economic freedom stimulates life satisfaction and have shown that a positive relationship exists between them (Veenhoven 2000;Ovaska and Takashima 2006;Gropper et al 2011;Gehring 2013;Graafland and Compen 2015) as well as with (several dimensions of) emotional well being .…”

Section: Well-being and Economic Freedommentioning

confidence: 99%

“…The concept has been analyzed in more than 400 scientific articles (Hall and Lawson 2014). Previous research has shown that economic freedom is positively related to income per capita or economic growth (De Haan et al 2006;Justesen 2008;Faria et al 2016;Murphy 2016;Murphy and O'Reilly 2018;Spruk and Kešeljević 2018). Other studies have shown 1 3 that economic freedom also correlates with life satisfaction (Veenhoven 2000;Ovaska and Takashima 2006;Gropper et al 2011;Graafland and Compen 2015).…”

Section: Introductionmentioning

confidence: 99%

When Does Economic Freedom Promote Well Being? On the Moderating Role of Long-Term Orientation

Graafland

2019

Soc Indic Res

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An increasing volume of literature has shown that economic freedom is related to life satisfaction. However, life satisfaction may not fully describe well-being because of its subjective nature. This study contributes to previous literature by extending analysis of the relationship between economic freedom and life satisfaction to other dimensions of wellbeing as measured by the better life index of the OECD that includes both objective and subjective measures. A second innovation of this paper is that, in explaining the differences in well-being between countries, we conjecture that the relationship between free market institutions as measured by economic freedom and well-being is moderated by the cultural dimension of long-term orientation. This hypothesis is supported for six out of 11 dimensions of well-being: income, community, health, life satisfaction, safety, and work-life balance. Our study shows that looking at interdependencies between culture and formal institutions can increase the explanatory power of internationally comparative research into well-being.

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“…Since transaction costs appear to be persistent and tend to change very slowly over time, there are significant reasons to believe that potentially time‐varying instruments predicting the level of transaction costs reflect many other growth‐confounding changes beyond the legal rules (Helland & Klick, ). Many instrumental variables used to address the endogeneity of institutional variables do not provide time‐varying year‐to‐year changes such as colonial settler mortality rates (Acemoglu et al., ), population density in the year 1500 (Acemoglu et al., ), ethnic fractionalization (Mauro, ), factor and resource endowments (Easterly & Levine, ), the presence of historical gold mines (Acemoglu, García‐Jimeno, & Robinson, ), the prevalence of toxoplasma gondii (Maseland, ), the presence of colonial state (Acemoglu, Garcia‐Jimeno, & Robinson, ; Acemoglu, Naidu, Restrepo, & Robinson, ), and pre‐colonial genetic diversity (Faria, Montesinos‐Yufa, Morales, & Navarro, ) among several others. Our instrumental variables follow a similar logic.…”

Section: Identification Strategymentioning

confidence: 99%

Transaction costs and economic growth under common legal system: State‐level evidence from Mexico

Spruk

Kovač

2019

Economics & Politics

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This paper examines the contribution of administrative and procedural transaction costs to economic growth under common legal system. We show that administrative and procedural costs vary quite a lot even within the institutional environment sharing the common legal system. States with low‐cost business registration, low‐cost access to property rights and greater judicial efficiency tend to have consistently higher growth. The established effects are robust to alternative model specifications, heterogeneity bias, and to a variety of control variables that might confound the effects of administrative and procedural costs on growth. Such differences in costs are far from being trivial as we show that these within‐system differences might be instrumental in influencing economic growth. Lower administrative and procedural costs induce growth by increasing investment rate, lowering unemployment rate, encouraging labor supply and improving total factor productivity. In the counterfactual scenario, the transition from high‐cost to low‐cost regime is associated with substantial growth and development gains over time. By exploiting the variation in the disease environment, ethnic fractionalization and historical urbanization, we show that the negative effect of rising procedural and administrative costs on growth and development appears to be causal.

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Unbundling the roles of human capital and institutions in economic development

Cited by 56 publications

References 48 publications

Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective

When Does Economic Freedom Promote Well Being? On the Moderating Role of Long-Term Orientation

Transaction costs and economic growth under common legal system: State‐level evidence from Mexico

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