Working Paper: NBER ID: w9305
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: Institutions; Geography; Trade; Economic Development
JEL Codes: O1; O4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Geography (R12) | Income (D31) |
| Institutional Quality (L15) | Income (D31) |
| Trade (F19) | Income (D31) |
| Geography (R12) | Institutional Quality (L15) |
| Institutional Quality (L15) | Integration (F15) |
| Integration (F15) | Institutional Quality (L15) |