Institutions vs. ‘First-Nature’ Geography – What Drives Economic Growth in Europe’s Regions?

Rodríguez-Pose, Andrés and Tobias Ketterer ()
Authors registered in the RePEc Author Service: Andrés Rodríguez-Pose

No 11322, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The debate on whether institutions or geography prevail in driving economic growth has been rife (e.g. Sachs 2003 vs. Rodrik et al. 2004). Most of the empirical analyses delving into this debate have focused on world countries, whose geographical and institutional conditions differ widely. Subnational analyses considering groups of countries with, in principle, more similar institutional and geographical conditions have been limited and tended to highlight that geography is more important than institutions at subnational level. This paper aims to address whether this is the case by investigating how differences in institutional and ‘first-nature’ geographical conditions have affected economic growth in Europe’s regions in the period 1995-2009. In the analysis we use a newly developed dataset including regional quality of government indicators and geographical charactersitics and employ 2-SLS and IV-GMM estimation techniques with a number of regional historical variables as instruments. Our results indicate that at a regional level in Europe institutions rule. Regional institutional conditions – and, particularly, government effectiveness and the fight against corruption – play an important role in shaping regional economic growth prospects. This does not imply, however, that geography is irrelevant. There is evidence of geographical factors affecting regional growth, although their impact is dwarfed by the overriding influence of institutions.

Keywords: Regional economic growth; Institutions; Geography; Quality of government; Nuts-2 regions; Europe (search for similar items in EconPapers)
JEL-codes: O11 O43 R11 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-eur, nep-geo, nep-gro, nep-net and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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