Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity

Eicher, Theo and Leukert, Andreas (January 2006): Institutions and Economic Performance: Endogeneity and Parameter Heterogeneity. Discussion Papers in Economics 2006-5

Abstract

The hallmark of the recent development and growth literature is a quest to identify institutions that explain a significant portion of the observed differences in living standards across countries. Empirical work in the area focuses almost exclusively on either the global sample or on developing nations. Certainly it is important to know which institutions are lacking in these developing countries, but the analysis provides little evidence for us to know to what extend a common set of institutions actually matters in advanced and developing countries. In this paper we examine parameter heterogeneity in prominent approaches to institutions and economic performance. We find that a new set of instruments is necessary to control for endogeneity, but that a common set of economically important institutions does indeed exist among advanced and developing nations. The impact of these institutions does vary substantially across samples; it is about three times as high in developing countries as compared to OECD countries.

• Item Type: Paper (Discussion Paper)
• Keywords: Economic Institutions; Political Institutions; OECD and Developing Countries; Economic Performance; Parameter Heterogeneity
• Subjects: Economics; Economics > Discussion Papers in Economics
• Dewey Classification: 300 Social sciences; 300 Social sciences > 330 Wirtschaft
• Journal of Economic Literature classification: O1, O4, P0
• Language: English