Institutions and Growth: a GMM/IV Panel VAR Approach

Carlos Góes

No 2015/174, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; time series; Institutions; Panel VAR; Economic Development; EFW index; index AJR; estimation sample; expropriation index; endogenous variable; Estimation techniques; Vector autoregression; Structural vector autoregression; Personal income (search for similar items in EconPapers)
Pages: 14
Date: 2015-07-27
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Citations: View citations in EconPapers (1)

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Journal Article: Institutions and growth: A GMM/IV Panel VAR approach (2016)
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