Deep determinants of economic growth – empirical verification with panel data models

Tomasz Brodzicki () and Dorota Ciolek ()
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Dorota Ciolek: Faculty of Management, Department of Econometrics, University of Gdansk

No 801, Working Papers from Economics of European Integration Department, Faculty of Economics, University of Gdansk, Poland

Abstract: We verify the impact of the so-called deep determinants on the level of economic real GDP per capita for an unbalanced panel of 207 economies within the period 1996-2004 using the Hausman-Taylor method of estimation. Institutional variables are detected to be endogenous. The results confirmed the assumed impact of deep determinants on the observed disparities in economic development. In most cases the basic specification of the model suggested by the empirical literature (log of openness, rule of law, distance from equator) is statistically significant and the impact of the variables has the anticipated direction. Several other specifications are tested and they perform pretty well. As the distance from equator has been detected not to be statistically insignificant in several specifications (for Asia and Europe) a combination of exogenous geographical variables enters the model with positive results. The basic specification of the model fits well the context of Africa and South America. It however performs badly for Asia. The quality of institutions is of prime importance for southern hemisphere economies as well as for former (currently economies in transition) and current socialist economies. The permanent improvement in the quality of institutions is the key determinant of success of economic transformation – underperformance in this area leads to smaller gains in terms of GDP per capita levels attained.

Keywords: economic growth; economic development; institutions; geography; openness; panel data models; Hausman-Taylor estimator (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dev, nep-hap and nep-sea
Date: Written 2008-05

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http://gnu.univ.gda.pl/~keie/aio12.pdf First English version, 2008

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