Institutions and Growth: a GMM/IV Panel VAR Approach

Author/Editor:

Carlos Góes

Publication Date:

July 27, 2015

Electronic Access:

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Summary:

Both sides of the institutions and growth debate have resorted largely to microeconometric techniques in testing hypotheses. In this paper, I build a panel structural vector autoregression (SVAR) model for a short panel of 119 countries over 10 years and find support for the institutions hypothesis. Controlling for individual fixed effects, I find that exogenous shocks to a proxy for institutional quality have a positive and statistically significant effect on GDP per capita. On average, a 1 percent shock in institutional quality leads to a peak 1.7 percent increase in GDP per capita after six years. Results are robust to using a different proxy for institutional quality. There are different dynamics for advanced economies and developing countries. This suggests diminishing returns to institutional quality improvements.

Series:

Working Paper No. 2015/174

Subject:

Econometric analysis Estimation techniques National accounts Personal income Structural vector autoregression Vector autoregression

English

Publication Date:

July 27, 2015

ISBN/ISSN:

9781513555508/1018-5941

Stock No:

WPIEA2015174

Pages:

14

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