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The geographic dimensions of institutions

Samyukta Bhupatiraju ()

No 2014-086, MERIT Working Papers from United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT)

Abstract: In this paper we examine the role of institutions relative to economic performance, absolute geography and financial performance of a country. In order to do this, we use the spatial principal component analysis and a spatial canonical correlation analysis to obtain multi-dimensional measure of institutions, economic performance, absolute geography and financial performance of countries. Our analysis shows that the first canonical functions in all the cases give us results that conform to current literature. That is, we find that a higher level of development is correlated to a higher level of institutional quality, deeper financial structure as well as good geography of the Jeffery Sachs variety. From the second canonical functions we find that economic growth is correlated to market steering. We further find that geographic conditions need not define the institutional set up of countries. A similar institutional set up need not result in a similar financial structure in countries. We show that there is a necessity to take spatial interactions with neighbouring countries into account while analysing the relationships between institutions, geography, economic and financial performance of a country. We find that space indeed has a strong influence on the prevailing institutional and economic conditions of countries. While the impact of space on geography is very obvious, we find that it has no bearing on the financial performance of countries.

Keywords: Economic Development; Financial Markets; Saving and Capital Investment; Corporate Finance and Governance; Formal and Informal Sectors; Shadow Economy; Institutional Arrangements; Institutions and Growth; Regional Economic Activity; Econometric Models (search for similar items in EconPapers)
JEL-codes: O10 O16 O17 O43 R12 R15 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-geo, nep-gro and nep-ure
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