Working Paper: CEPR ID: DP9883
Authors: Wolfgang Keller; Carol Hua Shiue
Abstract: The paper introduces a framework for studying the hierarchy of growth factors, from deep to more immediate. The specific setting we examine is 18th and 19th century Germany, when institutional changes introduced by reforms and transportation improvements converged to create city growth. We assess the impact of institutions on growth by allowing two ways for institutions to affect growth. Institutions can directly affect growth, or it can impact on trade, which in turn affects growth. Once we separately quantify the link from institutions to trade, and trade to growth, the independent effect of institutions on growth is small. This suggests that part of what is often understood as trade's effect on growth can be attributed to institutional change. It is straightforward to apply this framework to other settings.
Keywords: growth; institutions; trade
JEL Codes: F1; O1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| French rule (F55) | Institutional changes (D02) |
| Institutional changes (D02) | Trade (F19) |
| French rule (F55) | Trade (F19) |
| Institutional quality (I24) | Railway development (O18) |
| Railway development (O18) | Price gaps (F12) |
| Price gaps (F12) | Trade (F19) |
| Institutions (D02) | City growth (R11) |
| Trade (F19) | City growth (R11) |