Institutions and Growth: a GMM/IV Panel VAR Approach
July 27, 2015
Download PDF
More Formats on IMF eLibrary
Order a Print CopyDisclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
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.
Subject: Econometric analysis, Estimation techniques, National accounts, Personal income, Structural vector autoregression, Vector autoregression
Keywords: Economic Development, EFW index, endogenous variable, estimation sample, Estimation techniques, expropriation index, index AJR, Institutions, Panel VAR, Personal income, Structural vector autoregression, time series, Vector autoregression, WP
Pages:
14
Volume:
2015
DOI:
Issue:
174
Series:
Working Paper No. 2015/174
Stock No:
WPIEA2015174
ISBN:
9781513555508
ISSN:
1018-5941
