The impact of institutions on economic performance [Elektronische Ressource] / vorgelegt von Andreas Leukert

Andreas Leukert

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• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2006
• Nombre de lectures: 27
• Langue: English

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THEIMPACTOFINSTITUTIONS ON
ECONOMICPERFORMANCE
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae(Dr. oec. publ.)
an der Ludwig-Maximilians-Universit?t M?nchen
2005
vorgelegt von
Andreas Leukert
Referent: Prof. Dr. Gerhard Illing
Korreferent: Prof. Theo Eicher, Ph.D.
Promotionsabschlussberatung: 08. Februar 2006TO MY PARENTS,
FOR MAKING THE LAST THIRTY YEARS POSSIBLE AND
TO KAROLIN,
FOR MAKING THE LAST THREE THE BEST.
Acknowledgements
I would like to thank my supervisor Gerhard Illing for his ongoing support during my
Ph.D. studies. I am especially indebted to my co-supervisor and co-author of chapter
2, Theo Eicher, for his guidance, inspiration, patience and support during the process
of writing this dissertation and for the fun I had working with him. I am grateful to
him and Chris Papageorgiou for familiarizing me with the Bayesian model averaging
methodology. I greatly bene?tted from numerous discussions about this methodology
with them and Adrian Raftery provided helpful comments and clari?cations on it
during my stay at the University of Washington. I thank the whole Department of
Economics there for the hospitality during the summer of 2005 and Theo Eicher for
extending the invitation. I feel honoured and privileged to have been a member of the
?rst class of the Munich Graduate School of Economics and thank many of my fellow
students for insightful discussions and comments on my work. Special thanks go to
Oliver Roehn, Basak Akbel, Romain Baeriswyl, Jan Sandk?hler, Hanjo K?hler, Stefan
BornemannandGerritRoth. Iamalsoindebtedtothepeoplebehindthescenesofthe
Munich Graduate School of Economics and the Department of Economics, especially
IngeborgBuchmayrforherhelpandassistancewitheverythingonemightaskherabout
andDirkR?singandPeterDumitschfortakingcareofeveryminorormajorcomputer
problem. Comments on my work by Cecilia Garcia-Penalosa, Christian Henn and
participants at various seminars at Munich University and at sessions during the 9th
World Congress of the Econometric Society, UCL London, 2005 and the 20th Annual
Congress of the European Economic Association (EEA), Amsterdam, 2005 are greatly
appreciated. I also thank Torsten Persson for making his dataset available to me.
Financial support through the German Research foundation (DFG) and the Munich
GraduateSchoolofEconomicsisgratefullyacknowledged. Lastbutcertainlynotleast,
I especially thank Karolin Becker for all her help, support and encouragement.Contents
Preface 1
1 Finance, Institutions and Growth - Accounting for Model Uncer-
tainty 10
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.2 Growth Theories and the Data. . . . . . . . . . . . . . . . . . . . . . . 14
1.3 Accounting for Model Uncertainty . . . . . . . . . . . . . . . . . . . . . 18
1.3.1 Bayesian Model Averaging . . . . . . . . . . . . . . . . . . . . . 21
1.4 BMA Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
1.4.1 Finance or Something Else? . . . . . . . . . . . . . . . . . . . . 26
1.4.2 Finance as a Barrier to Adaption? . . . . . . . . . . . . . . . . . 30
1.4.3 Institutions and Health as Facilitators of Technological Di⁄usion 33
1.5 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
1.5.1 Robustness to Di⁄erent Priors . . . . . . . . . . . . . . . . . . . 35
1.5.2 Robustness to Instrumentation and Dilution . . . . . . . . . . . 40
1.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
1.7 Appendix Chapter 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
2 InstitutionsandEconomicPerformance-EndogeneityandParameter
1Heterogeneity 52
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
1This chapter is based on joint work with Theo Eicher, University of Washington.
22.2 Parameter Heterogeneity in Instruments and Institutions . . . . . . . . 56
2.2.1 Established Instruments and Institutions . . . . . . . . . . . . . 56
2.2.2 The Hierarchy of Institutions Hypothesis . . . . . . . . . . . . . 64
2.3 Robustness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
2.3.1 Alternative Instrument Speci?cations . . . . . . . . . . . . . . . 71
2.3.2 Outliers and Small Samples . . . . . . . . . . . . . . . . . . . . 75
2.3.3 Alternative Economic Institutions . . . . . . . . . . . . . . . . . 79
2.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
2.5 Appendix Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
3 The Dynamics of Institutional Change - Formal and Informal Insti-
tutions and Economic Performance 87
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
3.2.1 TheAgent?sDecisiontoAccumulateInformalInstitutionalQual-
ity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
3.2.2 Optimal Scale of Formal Institutional Reform . . . . . . . . . . 101
3.3 Implications and Evidence . . . . . . . . . . . . . . . . . . . . . . . . . 111
3.4 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
3.5 Appendix Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
3.5.1 An Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
3.5.2 Stability in Figure 1 and the Example in Section 3.5.1. . . . . . 118
3.5.3 Negative for the Example of Section 3.5.1 . . . . . . . . . . . 119
3.5.4 Proofs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120
Bibliography 122LIST OF TABLES 5
List of Tables
Table 1.1 BMA Results For Linear Speci?cations 27
Table 1.2 Interacted Finance Variables Versus Levels of the Rest 31
Table 1.3 Barriers to Technology Di⁄usion in Health and Institutions 34
Table 1.4 Robustness of Linear Speci?cation to Prior Model Size 7 36
Table 1.5 Robustness of Table 1.2 to Prior Model Size 7 37
Table 1.6 Robustness of Table 1.3 to Prior Model Size 13 38
Table 1.7 Robustness of Table 1.3 to Prior Model Size 7 39
Table 1.8 Robustness to Multicollinearity 42
Table 1.9 Switched Regression -
Controlling for the Endogeneity of Institutions 43
Table 1.A1 Variables Used Grouped By Growth Theories 48
Table 1.A2 Descriptive Statistics 49
Table 1.A3 Including the Square of the Initial Output Gap 50
Table 1.A4 Correlation Matrix for Institutions,
Health, Geography and HC 51
Table 2.1 Explanatory Power of Institutions and Instruments 59
Table 2.2 Performance of Institutions and Instruments 62
Table 2.3 Institutions and New Instruments 67
Table 2.4 Hierarchy of Institutions and Parameter Heterogeneity 68
Table 2.5 Instrument Robustness: Political Institutions in 1900 71
Table 2.6 Instrument Robustness: All Political Variables 73
Table 2.7 Instrument Robustness: Persson?s (2004) Political Institutions 74
Table 2.8 Instrument Robustness:
La Porta et al (2004) Judicial Institutions 75
Table 2.9 Outlier Robust Estimation: OECD Regressions 76
Table 2.10 Bootstrapped Results: OECD Regressions 78
Table 2.11 Hierarchy of Institutions in Alternative Datasets 80
Table 2.A1 Correlation Matrix of Political Institutions 84
Table 2.A2 The Hierarchy of Institutions Factor Analysis 86
Table 2.A3 Factor Analysis of Political Institutions 86List of Figures
Figure 1.A1 Best Models for Table 1.1 46
Figure 1.A2 Best Models for Table 1.2 46
Figure 1.A3 Best Models for Table 1.8 47
Figure 1.A4 Best Models for Table 1.9 47
Figure 2.1 Institutions And Economic Performance
In- And Outside the OECD 54
Figure 3.1 Multiple Equilibria:
Critical Threshold for Informal Institutions 100
Figure 3.2 Optimal Reform for Two Countries without Threshold 107
Figure 3.3 Optimal Reform for Two Countries with Threshold 111Preface
?[the country] had probably long ago acquired that full complement of riches
which is consistent with the nature of its laws and institutions. But this
complement may be much inferior to what, withother laws and institutions,
the nature of its soil, climate and situation might admit of.
2Adam Smith, Wealth of Nations
3?WhyareWesoRichandTheysoPoor?? Whatexplainsmoderneconomicgrowth
andthemarkeddi⁄erencesinincomepercapitalevelsaroundtheworld? Forexample,
why is Luxembourg with a purchasing power parity adjusted income per capita of
446,000 US Dollars nearly a 100 times richer than Tanzania with its 500 US Dollars?
Why did Germany and Japan catch up with world leaders in income levels after the
second World War? Why did the growth process accelerate in some nations like China
and India while others, like most in Sub-Saharan Africa, stagnate? How did South
KoreaandTaiwanachieve doublingtheirincome inadecade orless? As Robert Lucas
(1988) famously put it:
?The consequences for human welfare involved in questions like these are
simply staggering: Once one starts to think about them it is hard to think
of anything else.?
Thisdissertationanalyzestheimportanceofinstitutionsforeconomicperformance,
tryingtomakeamodestcontributiontoexplainwhysomecountriesremainpoor,while
othersprosper. ItwaswrittenattheMunichGraduateSchoolofEconomicsfrom2002
to 2005 and consists of three chapters that can be read independently. The ?rst two
chapters assess the impor