Working Paper: CEPR ID: DP3643
Authors: Dani Rodrik; Arvind Subramanian; Francesco Trebbi
Abstract: We estimate the respective contributions of institutions, geography, and trade in determining income levels around the world, using recently developed instruments for institutions and trade. Our results indicate that the quality of institutions 'trumps' everything else. Once institutions are controlled for, measures of geography have at best weak direct effects on incomes, although they have a strong indirect effect by influencing the quality of institutions. Similarly, once institutions are controlled for, trade is almost always insignificant, and often enters the income equation with the 'wrong' (i.e. negative) sign, 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: development; economic growth; geography; institutions; trade
JEL Codes: O10; O40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Institutional quality (I24) | Income levels (D31) |
| Trade (F19) | Institutional quality (I24) |
| Geography (R12) | Institutional quality (I24) |
| Geography (R12) | Income levels (D31) |
| Trade (F19) | Income levels (D31) |