Income Growth and Institutional Quality: Evidence from International Oil Price Shocks

Mark Gradstein and Brückner, Markus
Authors registered in the RePEc Author Service: Markus Brueckner

No 8871, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In this paper, we study the causal effect of income growth on institutional quality in the 1984-2007 cross country panel. To focus on exogenous income windfalls, we employ international oil price shocks as an instrument for income growth. While national incomes and measures of institutional quality are highly correlated, our analysis fails to identify a clear pattern of a causal effect, and estimations often yield statistically insignificant coefficients, albeit with positive signs. We then explore the possibility that fixed country characteristics may mediate the effect of income on institutions. Focusing on measures of ethnic heterogeneity, we find that ethnic polarization acts adversely as a mediating factor in this regard.

Keywords: Income growth; Institutional quality (search for similar items in EconPapers)
JEL-codes: O11 (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-ene
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