Rule of Law, Democracy, Openness, and Income: Estimating the Interrelationships

Roberto Rigobon () and Dani Rodrik ()

No 10750, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We estimate the interrelationships among economic institutions, political institutions, openness, and income levels, using identification through heteroskedasticity (IH). We split our cross-national dataset into two sub-samples: (i) colonies versus non-colonies; and (ii) continents aligned on an East-West versus those aligned on a North-South axis. We exploit the difference in the structural variances in these two sub-samples to gain identification. We find that democracy and the rule of law are both good for economic performance, but the latter has a much stronger impact on incomes. Openness (trade/GDP) has a negative impact on income levels and democracy, but a positive effect on rule of law. Higher income produces greater openness and better institutions, but these effects are not very strong. Rule of law and democracy tend to be mutually reinforcing.

JEL-codes: F10 F43 O40 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev, nep-lam, nep-pke and nep-reg
Date: 2004-09
Note: EFG IFM ITI
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Working Paper: Rule of Law, Democracy, Openness and Income: Estimating the Interrelationships (2004)
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