Do Institutions Cause Growth

Do Institutions Cause Growth? Author(s): Edward L.
Glaeser, Rafael La Porta, Florencio Lopez-De-Silanes, Andrei Shleifer Source: Journal of Economic Growth, Vol. 9, No. 3 (Sep., 2004), pp. 271-303 Published by: Springer Stable URL: http://www.jstor.org/stable/40215873 Accessed: 23/08/2010 08:22
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Journal Economic of Growth, 271-303,2004 9, JfcJL Academic Publishers. ManufacturedThe Netherlands. in W^ 2004 Kluwer
Do Institutions Cause Growth?

EDWARD L. GLAESER
Harvard University
RAFAEL LA PORTA
Dartmouth College
FLORENCIO LOPEZ-DE-SILANES
YaleUniversity
ANDREI SHLEIFER
Harvard University over whether institutions economic cause or Werevisit debate the political growth, whether, alternatively, growth that andhuman accumulation toinstitutional lead We indicators institutional of capital improvement. find most used to establish proposition institutions the that cause growth constructed be conceptually are to quality unsuitable that for purpose. also find someoftheinstrumental We that variable used techniques intheliterature areflawed. BasicOLS results, wellas a variety additional as of that is evidence, suggest (a) human capital a more basicsource growth arethe of than countries outofpoverty often institutions,poor (b) get good through policies, institutions. and their pursued dictators, (c) subsequently by improve political and economic economic Keywords: development, growth aggregate productivity, political economy, property institutions rights, JEL classification: O40, P16,P14 O10,
1. Introduction face two major Today,both the UnitedStates and the international community around world, the from Africa: challenges Iraq,to Haiti,to sub-Saharan development howto ignite and Economic research identified has growth howto establish democracy. twobroad to these The the approaches confronting challenges. first approach emphasizes needto start with and other checkson government themechanisms as for democracy With inplace,investmenthuman institutions in and rights. such securing property political and therefore economic are to The second physical capital, growth, expected follow. the human physical and to the approach emphasizes needfor capitalaccumulation start It evenpro-market dictators secure can as of process. holdsthat property rights a matter
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EDWARDL. GLAESER ET AL.
Fromthevantagepointofpoorcountries, sees it policychoice,notof politicalconstraints. as democracy and other institutional improvements the consequences of increased educationand wealth,notas theircauses. Both approachesto development have extensive intellectual pedigree.The importance ofconstraining was stressed Montesquieu (1748) and Smith(1776), as well government by economics literature (Buchanan and Tullock, 1962; Northand by the new institutional Thomas, 1973; North,1981, 1990). DeLong and Shleifer (1993) suppliedearlyempirical of supportfor this view using data on urbanization European regionsduringthe last which showed fastercity growthundermore limitedgovernments. More millennium, the on with recently, literature economicgrowth, starting earlycontributions Knackand by Keefer (1995) and Mauro (1995), has turnedto the effectsof good institutions on economic growth.It is fairto say thatrecentwork,includingHall and Jones (1999), Acemoglu et al. (2001, 2002), Easterlyand Levine (2003), Dollar and Kraay (2003), and Rodriket al. (2004), has reached close to an intellectual consensus that the political institutions limitedgovernment of cause economicgrowth. The reverseidea, namelythatgrowth incomeand humancapitalcauses institutional in is improvement, mostclosely associated withthe workof Lipset (1960), who, however, himself gives creditto Aristotle. Lipset believed thateducatedpeople are morelikelyto resolve theirdifferences and votingthanthrough violentdisputes. through negotiation Education is needed for courts to operate and to empower citizens to engage with governmentinstitutions. Literacy encourages the spread of knowledge about the in malfeasance.Accordingto this view, countriesdiffer theirstocks of government's human and social capital which can be acquired through policies pursued even by dictators and institutional on outcomesdependto a largeextent theseendowments (see et al., 2003). This lineof workseemsto accordwell withtheexperiences South of Djankov underone-party the two Korea,Taiwan,and China,whichgrewrapidly dictatorships, first - thatgrowth leads to to democracy. eventually turning Empirically, Lipset's hypothesis in better politicalinstitutions has receivedconsiderable support theworkof Przeworski and his associates (Alvarez et al., 2000) and Barro (1999). The two views of economic and political development share some important investto similarities. They bothemphasize the need forsecure property rights support mentin humanand physicalcapital,and theybothsee such security a public policy as choice. However,theinstitutional view sees thepro-investment policies as a consequence view sees thesepolicies of politicalconstraints government, on whereasthedevelopment in poor countries unconstrained leaders. largelyas choices of their typically in to In thispaper,we revisit to thesetwobroadapproaches development an effort assess each one's empiricalvalidity. Our view is shaped to some extentby the experiencesof North and SouthKorea, illustrated Figure1. Priorto theKorean war,thetwo countries in histories. of were obviouslypartof one, so it is difficult think themas havingdifferent to werebothexceptionally in 1950. Betweentheend of theKorean warand 1980, They poor on bothcountries If are weredictatorships. institutions measuredby Polity's"constraints the executive," which, as we discuss below, is probablythe best of the measures Korea had an average used in theliterature, between1950 and 1980 North then commonly score of 1.71, and South Korea 2.16 (out of 7). Yet South Korean dictatorschose and the country reachingper capita grewrapidly, capitalismand secure property rights
DO INSTITUTIONSCAUSE GROWTH?
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1. constraints North versus South Korea. 1948-2001 Figure Executive
in Koreandictator, contrast, incomelevel ofUS$1589 in 1980.The North chose socialism, reachedthelevel of incomeof US$768 in 1980. Figure 1 also shows and thecountry only in itself intoa democracy, whileNorth Korea that, starting 1980, SouthKorea transforms a While on average,lookingoverthehalfcentury remains dictatorship. between1950 and institutions measuredby constraints the as on 2000, South Korea obviouslyhad better theseinstitutions theoutcomeof economicgrowth are after thanits 1950 rather executive, to to cause. It wouldbe wrong attribute SouthKorea's growth theseinstitutions rather than thechoices made by its dictators. Ourempirical three measuresof analysisproceedsin fivestages.In Section2, we revisit "institutions" used in thecurrent economicgrowth literature: of expropriation the risk by and on the effectiveness, constraints theexecutive.We showthat government, government first of thesemeasuresby construction notdescribepoliticalinstitutions: are two do they outcomemeasuresthatreflect government's the fromexpropriation the in past restraint first who choose case, and itsqualityin thesecond.These measuresdo notcode dictators to respect than electedleaderswho have no property rights differently democratically any choicebuttorespect them. Since thesemeasures confound constraints government on with whichin their dictatorial do notproxy institutions, for essence are constraints choices,they theseare bothsubjectivemeasureswhichrise sharply withthe (North,1981). Moreover, level of economicdevelopment, severedoubtsthat causalityrunsfrom the themto raising thantheotherway around. rather growth The third measurewe consider, constraints the executive,is in principlelinkedto on constraints government, in reality constructed reflect outcomesof most on but is to the recentelections.In developingcountries, even this measure is extremely volatile,and
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or cannotbe plausiblyinterpreted reflecting durablerules,procedures normsthatthe as measuresof term' 'institutions" refers Indeed, we show thatthe threeconventional to. that on institutions uncorrelated are withconstitutional constraints government scholars that have just begunto use. All thisevidenceshedsdoubton theproposition themeasures thattheyare of institutions used in the growth literature reflect any "deep" parameters to purported measure. between In Section 3, we discuss some of the basic OLS evidence on therelationship the humancapital,and economic growth. confirm now well-established We institutions, and that propositions theinitiallevel ofhumancapitalof a country, theaveragelevel of its overthat institutions a periodof time, over itslevel ofeconomicgrowth verysame predict of time. But, as Section 2 shows, and the South Korean example illustrates, period of In institutional qualityrises as a country growsricher. fact,we findthat,in a variety initial levels of constraints the executive do not predictsubsequent on specifications, to economicgrowth, whereasinitiallevels ofhumancapitalcontinue be strong predictors. thatconstraints on of Thus, even the OLS evidenceis quite unsupportive theproposition that theexecutivecause growth, is supportive theproposition themorebasic cause and of is humancapital. In Section 4, we tryto dig deeperintotheseissues by lookingat the universeof poor countriesas of 1960. We find that virtuallyall of these countrieshad uneducated in and run Indeed,mostcountries thisgrouphave populations, weremoreover bydictators. These dictatorships a large had dictators. of spentthevastmajority yearssince 1960 under withtheview thatconstraints of itself inconsistent rates,an observation dispersion growth of on government shape growthexperiencesof poor countries.The near universality in is of in poor countries thatthesecurity property thesecountries suggests dictatorships theresultof policy choices, notconstraints. have used to thatresearchers In Section 5, we turnto one of the centralstrategies variables.We discuss recent instrumental establishthe primacyof politicalinstitutions: work of Acemoglu et al. (2001, 2002), which shows that,among European colonies, institutional in settler and qualityand thelevel mortality populationdensity 1500 predict do thattheseresults notestablisha of economic development today.We show,however, in role forinstitutions. theEuropeanswho settled theNew Worldmay have Specifically, thatis, theirhuman but withthemnot so much theirinstitutions, themselves, brought withtheempiricalevidence as well. We is consistent This theoretical ambiguity capital. are for show thatthe instruments used in the literature institutions even more highly variable correlated withhumancapital bothtodayand in 1900, and that,in instrumental specifications predicting economic growth, human capital performs better than of institutions. the purelyeconometriclevel, this evidence suggeststhatpredictors At for are not valid instruments institutions. settlement patterns In Section 6, we conclude the empiricalanalysisby lookingat the timingof human quality. We findevidence consistentwith the capital accumulationand institutional and humancapital accumulation of SouthKorea, namelythateconomicgrowth example thantheotherway around. rather cause institutional improvement, ourselves of Finally,Section 7 concludeswithsome implications our analysis.We find If muchcloser to Lipset thanto thenew institutionalists.theexperienceof poor countries in the last 50 years is a guide, politicallyconstrained may not be a viable government
DO INSTITUTIONS CAUSE GROWTH?
275
these for to Rather, countries needtoemphasize rights. may strategy them secure property economic and that such even Growth these in policies choices ensure security, bydictators. without immediate institutional andis likely in countries be feasible may improvement, turn leadtoinstitutional Atleastthis what datashow. is the to improvement. of 2. The Measurement Institutions as "a North institutions setofrules, and and (1981)defines compliance procedures, moral the of ethical behavioral norms in to designed constrain behavior individuals theinterests the or of ofmaximizing wealth utility principals" 201-202).A keyword this that and (pp. or other definitions shareis constraints. constitutions electoral Thus rulesare good but chosen dictators havea free of who hand are by examples institutions, goodpolicies not.Butthere another is essential noted the aspectof institutions evenin dictionaries: constraints tobe reasonably need or "constraints" Indeed, permanent durable. transitory and wouldnotnecessarily This bind, maybe changed thosewhodo notlikethem. by has or to on, example, justify permanency "depth"ofinstitutions beenrelied for using as for et (Rodrik al., 2002). Thuslegal history an instrument institutional quality today like orelectoral rules lookmore "institutions" they actually when are usedover systems in of for to or time, contrast, example, thepresidencies Bill Clinton George Bush,which most as not peoplewould regard "institutions." In thissection, discussthemeasurement political of we institutions in recent used research. askifthese We measures institutions (a) constraints government of reflect on and durable features theenvironment. showthat, fact, of We in or (b) permanent at least they reflect neither. To measure the has on sets Herewe institutions,literature focussed several ofvariables. discuss three. first usedinitially Knack Keefer The and set, (1995) andHall andJones by et indicators institutional of (1999),andmore by recently Acemoglu al. (2001),aresurvey from International the Risk collected overthe1980sand 1990s. quality Country Guide, The secondset,usedmostrecently Rodrik, and Subramanian, Trebbi (2002), is an by index mostly of assessments government of effectiveness collected aggregated survey by Kaufmann al. (2003).The third coming et from Polity datasetcollected the IV set, by and scientists to the of 2000),aimsdirectly measure limits political (Jaggers Marshall, executive power. Belowwediscuss these measures institutions. make of We three distinct all First, points. three sets data measure not characteristics North that refers to. outcomes, some permanent As such, these all measures risewith capitaincome, (2) arehighly and volatile. (1) per Bothofthese facts inconsistent theviewthat are with measure or they permanent even durable features thepolitical of environment. the two of Second, first setsof measures institutions constructedthat are so dictators receive high as freely choosing goodpolicies evaluations governments as constrained choose them.An examination these to of variables for that who shows, example, dictators choseto respect property - for rights in has example, theUSSR or Singapore received highscores,whichthe literature as Even measures extremely are useful interpretedhaving "good institutions." ifthese indicators policychoices, of not and theyare by their veryconstruction constraints,
276
therefore on that unusablefordiscussionsof how specificconstraints government would to the of The PolityIV variablesare intended focuson guarantee security property rights. but political outcomes ratherthan political constraints, we show thattheytoo reflect durableconstraints. with the Third, these measures of political institutions appear to be uncorrelated available constitutional on measures of constraints government coming from either and itis measuresare noisy, It theseconstitutional electoralrulesor courts. is possiblethat fromwhatactuallytakes place in a certainthat*'rules on the books" are verydifferent outcomesthatscholarshave used But country. thisis preciselythepoint:theinstitutional as measuresof constraints to have verylittle do withtheconstitutional constraints, raising doubtsabout theeffectiveness changing of politicalrules. Begin withthe data fromICRG. The data include subjectiveassessmentsof risk for international investorsalong such dimensionsas law and order,bureaucratic quality, contract and risk of government risk of expropriation the government, by corruption, It the data sets,thisone is probably mostproblematic. is plainthat Of repudiation. all three rather thansome permanent thesemeasuresreflect whatactuallyhappenedin a country with lowestexpropriation the rulesofthegame. Forexample,in 1984,thetoptencountries the riskincludeSingaporeand theUSSR. In thesecases, thedata obviouslyreflect choices similarlines, the data show a bizarre of dictatorsand not political constraints. Along in reduction theriskofexpropriation time.Between 1982 and 1997,Iranmoves from over thescoreof 1 (highest risk) expropriation to 9 (close to thetopscoreof 10), Libya from1.5 institutional constraints withsignificant to 9, and Syriafrom1.5 to 9. We are notfamiliar on the leaders of Iran, Libya, and Syria,althoughof course in the last few years these theirchoices. Indeed, and dictators had stayedaway fromexpropriation the data reflect withthe intellectual of the Washington consistent Consensus,thedata show that victory 5 risk theaverage score on expropriation in the sample rises from in 1982 to 9 (withthe risk measures, it is obviously not median of 9.5) in 1997. Whateverexpropriation checks and balances on thesovereign. or rules,procedures, normssupplying permanent variable is likewisea clear effectiveness" The Kaufmannet al. (2002) ' 'government in outcome measure. Starting 1996, these authorshave aggregateda large numberof quality into broad indices of government subjective assessments of institutional of we "In government effectiveness. effectiveness, combine perceptions the qualityof of the serviceprovision, qualityof thebureaucracy, competence civil servants, the public of and the credibility the the independenceof the civil servicefrom politicalpressures, commitment policies intoa single grouping"(p. 8). These are clear ex to government's rather than post outcomes,highlycorrelatedwiththe level of economic development, scorein theworld that per politicalconstraints se. Indeed,thecountry receivesthehighest rule and forthisparty'schosen respect is Singapore,a stateknownbothforits one party forprivateproperty. rather the at attempt measuring politicalenvironment PolityIV data make thegreatest than dictatorial choices. Constraintson the executive refers to "the extent of constraints thedecision-making on institutionalized powersof chiefexecutives,whether score forthisvariableis 7, thelowestis 1. The individuals collectivities."The highest or tendto getthe like but richdemocracies, also countries Botswana,India,and SouthAfrica, like scoreof7. Dictatorships Cuba, Iraq,North Korea,butalso Pinochet'sChile get perfect
277
countries such as China and USSR are in themiddle theworstscore of 1, thecommunist is with3s. It is difficult see how property moresecurein Mao's China thanin Pinochet's to to Chile, butat least it is clear whatthevariableis trying get at. The concernof thisvariableis, accordingto its creators, withthechecks and balances in betweenthevariousparties thedecisionmaking However,a closerlook at how process. reveals thatit is an outcome measure,which this variable is constructed immediately but have reflects the constraints, whathappenedin the last election.When countries not their scoresfluctuate For inconsistent electoral wildly. example,Haitigetsthe experiences, worstscoreof 1 underthedictatorship is during1960-1989,jumps up to 6 whenAristide electedin 1990, goes back to 1 whenhe is oustedduring1991-1993, risesagain to 6 and even a perfect scoreof 7 during and return power(even to 1994-1998 as Aristide his party but theelectionshad been widelycriticized), falls down all the way to 3 during though 2000-2001. Likewise,Argentina fluctuates betweentheworstscoresundergenerals, and even whentheelectedleadersundermine legislature thebestones after the and elections, courts.The data make it obviousthatPolityIV providesa rapidlymovingassessment of electoraloutcomesovertime, a measureof actualpoliticalconstraints government, not on not and certainly a measureof anything or thatrich permanent durable.And to theextent countries more likelyto hold regularelections,"constraints the executive" may are on well be a consequenceof development rather thantheotherway around. the to Likewise,themeasureof "democracy" in PolityIV reflects extent which "the threeessential,interdependent elements" are actuallyadheredto. These include "the and which citizens can express effective presence of institutions proceduresthrough aboutalternative constraints policies and leaders,theexistenceof institutional preference oftheexerciseofpowerbytheexecutive(see above), and theguarantee civil liberties of to all citizens in theirdaily lives and in acts of political participation."Althoughthe definition intended suggestsome permanence, construction the variable,like is to the of thatof thepreviousmeasure,reflects mostrecentexperiences. In Tables 1 and 2, we illustrate "outcome" nature even thePolityIV measures. the of Table 1 shows theaveragewithin-country deviationsof fivevariables:constraints the on executive fromPolity,democracyfromPolity,autocracyfromPolity,autocracyfrom Alvarezet al. (2000), and,forcomparison, Barro's measureof yearsof schooling.Due to
and Table1. Volatility political of institutions human capital. IV Polity Executive Constraints (1960-2000) Democracy (1960-2000) Autocracy (1960-2000) 19.36% Alvarez al. (2000) et Yearsof Schooling Autocracy (1960-1990) (1960-2000) 18.86% 10.33%
standard deviation Average within-country 18.53% 17.52%
Notes:The table showsthe averagewithin-country standard deviation variousmeasures political of of institutions human and Due to dataavailability, measure we human and capital. capital(yearsof schooling) thePolity variables political IV in of institutions1960,1965,1970,1975,1980,1985,1990,1995and 2000. We measure autocracy the variable from Alvarez al. (2000) for1960,1965,1970, 1975,1980,1985 and et 1990 onlybecausetheir dataendsat that All are to 0 point. variables normalized varybetween and 1. All variables defined theappendix. are in
278 Table2. Persistence political of institutions human and capital.
Variables Dependent YearsofSchooling Executive Constraints Autocracy-Polity IV (2000) (2000) (2000) Yearsofschooling 1.1773a (1960) (0.0885) Executive constraints (1960) IV Autocracy-Polity (1960) (1960) Democracy Observations R2 50 0.73 Democracy (2000)
0.2719b (0.1246)
0.1810c (0.0926) 50 0.07
50 0.09
0.3065b (0.1341) 50 0.10
Notes:The table showsOLS regressions the cross-section countries. specifications for of The includea constant we do notreport estimates thetable. but the in Robust standard errors shown parentheses. are in All variables defined theappendix. are in at Significant 1 percent at Significant 5 percent. at Significant 10 percent.
data availability, variablesare measuredevery5 years,between 1960 and 2000. All all individualyearobservations normalized lie between0 and 1 to make comparison are to easier.Table 1 shows thateven thePolityvariablesare twiceas volatileas themeasureof humancapital. If constancy a measureof depth, is thenhumancapital is *'deeper*'than institutions. Table 2 looks at persistence humancapitaland politicsby regressing of 2000 values of thepoliticalvariableson their1960 values. We find educationis muchmorepersistent that than the measures of constraints the executive fromPolity.The amountof mean on in reversion politicalinstitutions stunning, that be is suggesting thesevariablescan hardly used as assessments "deep" or "permanent"features thepoliticallandscape. of of The factthatthe measuresof institutions reflect choices (often used in the literature made by dictators) ratherthan constraints further illustratedby examining the is rules. We considerfour correlations betweenthese variablesand written constitutional suchmeasures.The first are motivated theworkofPerssonand Tabellini(2003) on two by constraints executive on electoralrules,whichthese authors as one of the important see are One such variable we use is "plurality",which equals one if legislators authority. elected using a winner-take-all rule. The other objective measure is "proportional which equals one if candidates to the upper and lower houses of representation," are electedusinga proportional Both of thesevariables system. parliament representation measuresof the come fromBeck et al. (2001). In addition,we use two constitutional is checkson theexecutivesuppliedby thejudiciaryfrom Portaet al. (2004). The first La court in of whichmeasuresthepermanency office supreme judges. judicial independence, The second is constitutional review,which measures the extentof judicial review of
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all are measures political of rules the legislation. Again, these constitutional constraining executive. measures inthegrowth Table3 presents correlations the between outcome the used and in institutions income 2000,andobjective institutional Forthe rules. literature, capita per traditional institutional we the literature use theaverages and measures, follow growth over time Thuswe usethe1960-2000 for computed different periods. average executive for 1982-1997 for Alvarez constraints, risk, average expropriation 1960-1990 average the et al. (2000) measure autocracy, theaverage 1996,1998,and2000 valuesfor of and of effectiveness. Judicial and review available are government independence constitutional at onlyone point time(in 1995),whileplurality proportional in and are representation overthe1975-2000 averages period. Three results stand First, traditional out. the indices institutional of are quality strongly correlated eachother, wellas with capita with as income. result consistent This is with per institutions a effect growth, also with on but reverse having causal positive causality. if as outcomes as richer, they Specifically,institutional improve a country grows clearly both average the ofperiod the and end will in institutional assessments be higher do,then - both richer countries. and Second,plurality proportional representation constitutional - are measures constraints correlated of withper capitaincome(as well as withthe butthecorrelations much are smaller than those thetraditional of measures), subjective indices. the of and and Third, measures judicialchecks balances judicialindependence constitutional review are uncorrelated per capita income,and only judicial with correlated outcome with The weakcorrelations is indices. independence weakly may meaneither thattheseconstitutional measures constraints noisy, thatthe of are or association between "institutions" development and comesfrom institutional outcomes in better richer rather political than rules wealth. countries, being creating The bottom of thissection that commonly line is the usedmeasures institutions of cannot usedtoestablish are be Thesemeasures notconstructedreflect to either causality. constraints governmentpermanent of on or features thepolitical Instead, landscape. they are highly and mean-reverting. are barely volatile correlated theavailable with They of on measures constitutional constraintsgovernment. these the Yet are variables objective usedto showthat institutions growth. cause 3. Political HumanCapital,and Economic Growth Institutions, Table 4 presents standard the OLS growth measures of regressions usingthevarious institutions discussed we above.As in thecorrelation Table 3, we follow the political literature useaverages the and of assessments institutional of over of quality a period time. In Table4, thedependent variable thegrowth percapitaincome is of between 1960and variables initial are income capita suggested Barro, 2000,andtheindependent (as per by initial the of in as education, share a country's zones, wellas 1991), population temperate institutional variables one The confirm now-standard the eight entering at a time. results observation convergence, wellas thebenign of as influence temperate of weather. The results also show thatthe initial level of education a strong is of predictor economic One ofthis wouldsupport theories of subsequent growth. interpretation result
280
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(e.g., technologicalexternalities growthin which human capital generatessignificant thateconomic evidencesuggesting Lucas, 1988). However,Pritchett (2000) summarizes returns education in developing countriesare not especially high. An alternative to is interpretation along the lines of Lipset (1960), namelyhumancapital leads to more The key human capital benign politics, less violence, and more political stability. is but replace guns.These externality nottechnological political:courtsand legislatures This and in of security property economicgrowth. improvements turn bringaboutgreater is withtheevidenceofAlesinaet al. (1996) that politicalstability interpretationconsistent we economicgrowth, and withmanyfindings discuss below. predicts overa period between economicgrowth the correlation Finally, evidenceshowsa strong constraints overthat and theaverageassessments institutional of period,including quality and autocracy.In on the executive,risk of expropriation, effectiveness, government measures of contrast,there is no relationshipbetween growth and constitutional such as judicial independence, constitutionalreview, plurality,and institutions, outcome variables The contrastbetween the institutional proportional representation. is on constraints government, striking. used in thegrowth and literature, theconstitutional in entersignificantly the One reason thataverage assessmentsof institutions might so is thattheseassessmentsimproveas theeconomygets richer, the growth regressions use initial thatgrowth runsin reverse.Note, in contrast, typically regressions causality a Tables 5 and 6 present seriesof assess thispossibility, values of education.To further at in variableis theexecutiveconstraints the growth regressions whichthe independent because it is theonlymeasure of beginning theperiod.We focuson executiveconstraints it thatis clearlynota consequence of dictatorial choices,and hence,even though reflects on of electoral outcomes, can at least loosely be thought as relatingto constraints government. in Table 5 presents, using initial regressions starting 1960, decade by decade growth on income, initialperiod education,and initialperiod constraints the period per capita for variables. It also presentssimilarregressions the whole executive,as independent results but using20verysimilar period1960-2000. (We have also obtained, do notreport, initial executive year intervals.)Table 5 shows that,even in the OLS specifications, outsidethe 1980s, economicgrowth constraints have no predictive power forsubsequent These resultsexacerbatetheconcern whereasinitialhumancapital is a strong predictor. outcomesare used in growth overreversecausalitywhensample averagesof institutional specifications. are Table 6 takesadvantageof thefactthatdata on executiveconstraints available fora as fewcountries farback as themiddleofthe 19th as century, are dataon economicgrowth in school enrollments from Maddison (2003). We also have some data on primary starting on small samples,we can regresslong-term Lindert(2001). For these 1870 from growth is initialincome,and initialschoolenrollments. initialexecutiveconstraints, Again,there initial butsomeevidencethat on no evidencethat constraints theexecutivepredict growth, humancapital does. and betweeninstitutions The evidence presentedin these tables on the relationship view an leaves us skepticalaboutcausality.Nonetheless, advocateof institutional growth mightargue thatthe average political outcomeover timeis a good measureof durable then even if If reflect"deep" featuresof the environment, constraints. institutions
283
on initialconstraints the executiveand initialhumancapital. Table 5. Economic growth, 1960-1970 1970-1980 1980-1990 1990-2000 1960-2000
Panel A: Dependentvariables are the growthrates of GDP per capita for each decade between 1960 and 2000 and for the whole period 0.0225a 0.02943 0.0085 Share of populationliving 0.02903 0.02533 in temperate zone (1995) (0.0076) (0.0070) (0.0084) (0.0073) (0.0039) -0.0059 -0.0032 -0.0079b 0.0021 -0.00793 Log initialGDP per capita (0.0037) (0.0045) (0.0043) (0.0036) (0.0025) -0.0004 0.0027b Initialexecutiveconstraints 0.0008 0.0006 0.0013 Observations R2 (0.0013) 77 17% (0.0014) 99 6% (0.0012) 102 19% (0.0016) 95 6% (0.0009) 72 34%
Panel B: Dependentvariables are the growthrates of GDP per capita for each decade between 1960 and 2000 and for the whole period 0.02043 0.02203 Share of populationliving 0.0136b 0.0123c 0.01753 in temperate zone (1995) (0.0073) (0.0066) (0.0068) (0.0082) (0.0049) -0.0103b -0.0048 -0.00923 -0.0027 -0.01583 Log initialGDP per capita Log initialyearsof schooling Observations R2 (0.0040) 0.0075b (0.0033) 79 22% (0.0044) 0.01473 (0.0035) 86 24% (0.0048) 0.01 14a (0.0043) 90 16% (0.0048) 0.0102c (0.0060) 82 9% (0.0034) 0.00733 (0.0024) 71 38%
Panel C: Dependentvariables are the growthrates of GDP per capita for each decade between1960 and 2000 and for the whole period 0.02703 0.01913 0.02183 0.0135c 0.02553 Share of populationliving in temperate zone (1995) (0.0077) (0.0085) (0.0070) (0.0082) (0.0048) - 0.01463 - 0.01413 - 0.0130b - 0.0073 - 0.01893 Log initialGDP per capita Initialexecutiveconstraints Log initialyearsof schooling Observations R2 (0.0048) -0.0004 (0.0012) 0.01 163 (0.0035) 61 33% (0.0057) -0.0017 (0.0016) 0.01403 (0.0035) 80 20% (0.0045) 0.0031b (0.0013) 0.0105b (0.0043) 86 20% (0.0055) 0.0014 (0.0015) 0.0104c (0.0060) 81 9% (0.0034) 0.0008 (0.0008) 0.00963 (0.0028) 57 55%
of Notes: The table shows OLS regressionsfor the cross-section countries.The dependentvariables are the growthrates of GDP per capita for each decade between 1960 and 2000 and for the whole period. The include a constantbut we do not reportthe estimatesin the table. Robust standarderrorsare specifications shown in parentheses. variables are definedin the appendix. All Significantat 1 percent. Significant at 5 percent. Significantat 10 percent.
constraints theexecutivemeasurethecleannessofthelastelection, averageof such on the constraints timeis a good proxyforthe"permanent"or "durable" constraints. is over It thanthe starting thenthe average rather pointsthatbelongs in the growthregression. humancapital,beingnot as "deep" as theaverageof institutional Moreover, outcomes, simplydoes notbelongin theregression.
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Table6. Long-term economic initial executive constraints initial and human growth, capital. 1870-1950 1890-1950 1900-1950 - 0.0019 (0.0038) 0.0006 (0.0006) 31 0.02 - 0.001 1 (0.0037) 0.0002 (0.0006)
PanelA: Dependent variables thegrowth are ratesofGDP per capita eachperiod for GDP percapita 0.0027 0.0050b Log initial (0.0022) (0.0022) - 0.0001 Initial executive constraints 0.0002 (0.0004) (0.0005) Observations 29 27 R2 0.06 0.26 PanelB: Dependent variables thegrowth are ratesofGDP per capita eachperiod for - 0.00768 - 0.0028 GDP percapita Log initial (0.0013) (0.0025) - 0.0001 - 0.0002 Initial executive constraints (0.0005) (0.0002) schoolenrollment 1870 0.0206* Primary (0.0030) schoolenrollment 1890 0.01 27b Primary (0.0056) schoolenrollment 1900 Primary Observations R2 16 0.73 23 0.21
0.0067 (0.0066) 27 0.08
Notes:The tableshowsOLS regressions thecross-section countries. dependent for of The variables the are ratesof GDP percapitaforeach period. include constant we do notreport a but The specifications growth in in theestimates thetable.Robust in All are standard errors shown parentheses. variables defined the are appendix. at Significant 1 percent. at Significant 5 percent. at Significant 10 percent.
In light theresults have brought thisargument notpersuasive. the of is we First, fact out, thateven the Politymeasuresof institutions more volatile and moremean reverting are thanyearsof schoolingraises severedoubtsthatthesevariables,even if averaged,reflect does notdeal with morepermanent thanhumancapital. Second, thisargument anything the obvious point of reverse causality,and the fact that initial measures of political in institutions, just aboutanysample,seem to have no predictive powerat all. Indeed,even if we followtherecommendation constraints theexecutivemustbe averaged,but that on of rateson theaverageconstraints theexecutiveovertheprevious regress10-year growth The results very are decade, these averagesdo notpredictsubsequenteconomic growth. similar to those in Table 5. Averaging itself, without regressing growth on predict contemporaneous average institutional quality,does not suggestthatinstitutions the betweeneven theaverageoutcomemeasuresand the Third, lack ofcorrelation growth. doubtsthatanything constitutional constraints government raises still further on deep is does not need to be) being measured.In sum, while theremightbe (thoughcertainly it something "deep" about institutions, is implausibleto arguethatthevariablesused in the standard "deep". growth regressions captureanything
DO INSTITUTIONSCAUSEGROWTH?
285
What we learn do from analysis? us,theprincipal this To conclusion that, leastin is at theOLS regressions, evidence institutions economic the that cause as to growth, opposed is The measures institutions, of institutions,non-existent. objective growth improving those actually that describe constitutional that the rules limit power thesovereign, the of haveno predictive forthegrowth percapitaincome. of Eventhebeginning-ofpower executive constraints no predictive have In the variables period power. contrast, political thatare correlated withdevelopment themselves constructionproduct are a of by The evidence 1960-2000 for no for development. OLS cross-country provides support the claimthat "institutions growth." cause in 4. Politics Growth PoorCountries and After 1960 Growth are of on regressions one wayto assesstheeffect institutionseconomic growth. human and inthe Another is toconsider institutions sample poor of capital political way countries 1960.To this circa our of into with end,we divide 1960sample countries those lowhuman of belowthemedian valueof2.68), (total capital years schooling capita per intermediate human between and5.01years capita), high 2.68 and capital (schooling per human abovethe75thpercentile valueof5.01 years capita).We capital (schooling per divide sample four into of the independently this types political regimes using 1960-2000 IV score: autocracies with average score under (countries the 2), average Polity democracy stable democracies with score 10),andtwointermediate of (countries theaverage perfect autocracies 2 (the averagescore between and 7) and imperfect groups:imperfect democracies average score between and 10).Autocracies 7 include (the placeslikeSaudi and Stable democracies cover theusualdeveloped all countries Arabia, Vietnam, Yemen. that includes it CostaRica butnotFrance). (except Table 7 presents number observations each of the 12 cells usingthetwo the of in classifications. all educated are countries stable democracies independent Nearly highly = all are educated. (score 10), and nearly stabledemocracies highly (The two stable democracies intermediate with human are and Rica.)In contrast, capital Italy Costa nearly all dictatorships poorly are the with level educated; only dictatorships theintermediate of human are and Put the education capital Paraguay, Singapore, Taiwan. differently,lowest countries never are stabledemocracies; highest the education countries generally are but with democracies. Consistent Lipset, overthelast40 stable, sometimes imperfect, has beenmuchmorebenign well-educated, in poorly in than educated, years, politics countries. Are thesedifferences between educated and uneducated countries in reflected the rates Table8 presents dataonaverage the rates growth as well? growth ofdifferent groups ofcountries. countries high with in human 1960-2000, During capital 1960havegrown twicefaster, average, on than low human ones.Stabledemocracies havegrown capital faster imperfect than and faster dictatorships,average, than on democracies, much slightly butthismayof course justthehuman be In effect. addition, Table8 showsthe capital of ratesamongdifferent of It dispersion growth groups countries. showsthe higher of ratesacross autocracies thandemocracies, across poorly and dispersion growth educated countries relative thewelleducated to ones.
286 Table7. Pblitical and regimes human capital. YearsofSchooling (1960) Low (years schooling < 2.6785) Intermediate (2.6785< years schooling < 5.0115) High(years schooling > 5.0115) Total
Democracy 10 > Democracy 7 > Democracy Democracy <2 All Countries > 2 =10 > 7 0 2 17 19 6 5 3 14 8 14 3 25 28 3 0 31 42 24 23 89
of The Notes:Distribution countries yearsof schooling 1960 and political of in regimes. classification by IV We the is scorefor1960-2000from Polity database. political regimes basedon theaverage democracy belowthesample's dividethesampleof countries thosewithlow human into capital(yearsof schooling between 2.6785 and 5.0115),and median valueof 2.6785),intermediate human capital(yearsof schooling value of 5.0115 years). The table above thesample's75thpercentile highhuman capital(yearsschooling are in showsthenumber countries fallwithin All of that eachgroup. variables defined theappendix. The two stabledemocracies withintermediate levels are Italy and Costa Rica. The three schooling TaiwanandParaguay. authoritarian with levelsareSingapore, countries intermediate schooling
dictatorship. of a This suggestion receivesa further boostfrom simplecharacterization who actually to leads theless educatedcountries over time.In Table 9, we continue separatecountries levels of humancapital,as before.We thenclassifyfor intothosewithlow and moderate of each year the country'sleader along two dimensions.We follow the classification In we or Alvarezet al. (2000) of leadersas beingdemocratic autocratic. addition, groupthe tenure. Table 9 shows theamountof timespentby countries leadersby thelength their of tenure leadersof different and autocratic in our samplebeing led by democratic lengths. For dictators. led The least educatedcountriesare overwhelmingly by long-standing leaders who are the yearsin our sample,thesecountries led by autocratic 66 percent of eventuallylast for at least 5 years. For 50 percentof the years in our sample, these last forat least 10 years.In contrast, who eventually are countries led by autocrats only terms leaderswith led countries by democratic 6 percent thetimeare theleast-educated of are thesecountries run of that end up beingless than5 years,and only 13 percent thetime, welllastformorethan5 years.Amongmoderately electedleadersthat by democratically the situationis more mixed. About 43 percentof the time,these educated countries, of electedleaders.For 32 percent thetime,they are countries governed democratically by
abouttheprimacy The evidencein Tables 7 and 8 leads to another reasonforskepticism in of politicalconstraints economic development: for nearlyall poor countries although whileothers some of themhave managedto get out of poverty, 1960 weredictatorships, thatit is thechoices made by the stayedpoor.This kindof evidenceis at least suggestive to on rather thanthe constraints them,thathave allowed some poor countries dictators, constitutional withall the effective If frompoverty. being a stable democracy, emerge is and constraints theexecutive,is notan optionfora poor country, if dictatorship the on whatmakes fora successful more likelypoliticalpath,thenit is crucial to understand
DO INSTITUTIONSCAUSE GROWTH? rates Table8. Growth andpolitical regimes. YearsofSchooling (1960)
287
Democracy 10 > Democracy 7 > Democracy Democracy All <2 > 7 > 2 Countries =10 17 21 10 48 22 26 3 51 0.0185 0.0271 0.0235 0.0232 87 35 7 129 0.0076 0.0273 0.0204 0.0136 0.0303 0.0317 0.0250 0.0315 132 91 87 310 0.0120 0.0256 0.0247 0.0196 0.0294 0.0247 0.0144 0.0254
PanelA: Number observations of < Low (years schooling 2.6785) 6 9 Intermediate (2.6785< years 5.0115) schoolings > schooling 5.0115) 67 High(years 82 Total
rate PanelB: Average within-country 10-year growth < 0.0292 Low (years schooling 2.6785) 0.0036 0.0224 Intermediate 0.0225 (2.6785< years < schooling 5.0115) > 0.0212 High(years schooling 5.0115) 0.0257 0.0246 Total 0.0238
ratesacrosscountries PanelC: Meanstandard deviation the10-year growth of < 0.0224 Low (years 0.0298 schooling 2.6785) 0.0168 Intermediate 0.0161 0.0197 0.0206 (2.6785< years 5.0115) schoolings > 0.0122 0.0078 High(years schooling 5.0115) 0.0137 Total 0.0225 0.0210 0.0151
of described Table7. The tableshowsthenumber in of Notes:The tableis basedon thesample countries for of the rates observations each group countries, average GDP percapitagrowth within-country 10-year deviation the10-year of rates countries. democracy The andthemeanstandard GDP percapitagrowth across at scoreis computed the beginning each decade usingthe preceding yearsof data. We measure of ten at of ten are in growth the beginning each decade usingthesubsequent years.All variables defined the appendix.
aregoverned democratic 2 in In leaders lastbetween and10years office. contrast, who by these countries governed dictators lastfor are who more than years 44 percent 5 for of by thetime thesample. in that more than10 years stillthe is Yet,thedictatorship lastsfor in grouping Table9 (32 percent). largest single Thisevidence at mostsuggestive. it does suggest is But from point view the of that, the of frompoverty, focus on placing the of understanding emergence countries constraints government a starting on as reform havebeenmisplaced. focus The on may factor the in have been more accumulation, including growth human capital, might productive. 5. Instrumental Variables From beginning, growth institutions the the and research that recognized growth itself may leadtobetter institutions. wayinwhich literature toaddress problem One this tried this is instrumental variables.Mauro (1995) alreadyrecognizes these issues, and uses
288 Table9. Percentage years of under different spent political regimes. Low (years schooling < 2.6785)(%) < of Length leader 2 years Autocratic regime Democratic regime > of but Length leader 2 years < 5 years Autocratic regime Democratic regime > of but Length leader 5 years < 10 years Autocratic regime Democratic regime > of Length leader 10 years Autocratic regime Democratic regime 1.62 0.52 10.93 5.25 16.32 7.32 49.80 6.15
Intermediate (2.6785< years schooling < 5.0115) (%) 1.90 2.45 10.28 18.30 11.83 14.32 32.33 8.58
under autocratic democratic or Notes:The tablepresents meanpercentage years the of that countries spent withyearsof schooling 1960 below in from1960 to 1990. The sampleonlyincludes countries regimes into and 5.0115 (low and intermediate levels of human capital).The classification autocracy democracy of we the intofour comesfrom datain Alvarez al. (2000). Foreachtype political the et regime, split sample in of All are on of groups depending thelength thetenure theleader. variables defined theappendix.
Hall for fractionalization the populationas an instrument corruption. of ethnolinguistic but themusing and Jones(1999) use ICRG measuresof institutional quality, instrument "distance fromthe equator and the extentto which the primary languages of Western also triedto take advantageof the fact are spokentoday" (p. 110). Researchers Europe the thattheEuropeanexpansioninfluenced countries beingconqueredand colonized.La Portaet al. (1997, 1998, 1999) take advantageof thiscolonial experiment lookingat by legal transplantation. They argue thatEuropeans broughttheirlegal systemsinto the countries legal origincan be used as an theyconqueredor colonized, and thattherefore instrument thestructure variouslaws. for of boost by a pair of recent This line of researchwas subsequently given a substantial et al. (AJR) (2001, 2002). These authorsargue that centralto papers by Acemoglu is each country's political institutions not what laws the Europeans understanding but ratherwhetherthey themselvessettled in the particularcolonies. AJR brought, of (2001) argue that the mortality European settlersin the countriesthey colonized with shaped theirdecision to settleor not. When the Europeans settled,theybrought the themthe effective constraining executive,whereaswhenthey European institutions of rule and expropriation local did not settle, they instituted systems of arbitrary AJR (2002) further thatthe densityof non-European populationsin argue populations. When a regionwas the prospective colonies shaped the European settlement patterns. but denselysettled(or urbanized)by thelocals, theEuropeansdid notsettlethemselves, In institutions. low-density rather introduced areas, in contrast, theysettled exploitative theirinstitutions limitedgovernment, of and brought thereby causing long rungrowth. and indigenous Using this logic, AJR (2001, 2002) argue that both settlermortality
289
for population density in 1500 can be used as instruments modern day political institutions the constraining executive. The AJR papers invigorated institutions growth the and literature. Below we discuss their work.But, as a starting it is important note that,even if one agrees that to point, risk or indigenous population density shaped the European settlement mortality decisions,it is far fromclear thatwhat the Europeans broughtwith them when they settled limitedgovernment. seems at least as plausible thatwhattheybrought is It with them is themselves,and therefore their know-how and human capital (this is the of of mortality interpretation theeffects settler suggested theoretically Djankov et al., by 2003). If thatis the case, thenat a purelyconceptuallevel one cannot inferfromthe that of is To patterns European settlement the asset being transplanted institutions. put the same point in econometric valid instruments mustbe uncorrelated withthe terms, errorterm,and if settlement patternsinfluencegrowththroughchannels other than As has institutions, are not valid instruments. we suggestbelow, this observation they of variables regressionsof significant implicationsfor the interpretation instrumental on growth institutions. The correlation betweenAJR's proposedinstruments their and measuresof preferred institutions very high indeed. For example, the logarithmof settlermortality is is correlatedat -0.54 with average executive constraints, and -0.51 with average of at risk,while the logarithm populationdensityin 1500s is correlated expropriation - 0.35 and - 0.40 withthe same measuresof institutions. But are AJR's proposedinstruments valid? We have several concerns,some already discussed in the literature, some new and perhaps more important. but First,settler is measures of checks and mortality basically uncorrelatedwith the constitutional balances we discussedin Section2, and thelogarithm 1500 populationdensity only of is withplurality correlated and proportional If the Europeans veryweakly representation. their institutions one reallybrought constraining government, might expectthisinfluence to be reflected "rules and procedures,"yet this does not appear to be the case in in the data. This is also surprising light of all the available evidence that colonial in of rules and complianceprocedures has transplantation legal traditions the ultimate been central shapingthe legal and regulatory in of systems thereceivingcountries. Why wouldcolonial influence rules and procedures so strong one case, butnotin the on be in other? element of the Acemoglu, Johnson,and Robinson's line of Second, an important is that settlermortality reflects reasoning past settlement policies and theirmodern consequences. Yet the instruments appear to be correlatedwith the moderndisease environment well. Jeffrey as Sachs and his associates (Gallup et al., 2001; Kiszewski et al., 2004) present data on modernmalaria risk and malaria ecology. The correlation of the log of settlermortality with malaria risk is 0.67, and with malaria ecology it is 0.66. The log of 1500 populationdensity, of however,has a correlation 0.38 with malariarisk,butonly0.14 withmalariaecology.These correlations raise thequestionof whetherAJR's instruments reflect the historical rather than the modern disease since the lattermight have an independentaffecton human capital, environment, and development, institutions. AJRare well aware of thisconcern.As a test,theyregresstheir institutional preferred
290
thatsettler variableson settler and but and mortality not mortality malariatogether, find modern malaria is statistically Table 10 presentsthe results of similar significant. (AJR use a subset).Our resultsare different regressions usingall available observations on fromthosereported their in work.The impactof settler mortality today's institutions remainssignificant, so is thatof malaria risk.At least partof whatsettler but mortality the that issue ofmodern is disease environment. These results suggest captures themodern AJRinstruments disease environment real,and one shouldexercisecautionin treating is as proxiesforthecolonial but notmodernmortality risk. with correlated and 1500 populationdensityare strongly Still, both settler mortality and crucial today's per capita income. Why mightthisbe so? This gets us to our third for point.A necessaryconditionforthese variablesto be valid instruments institutions is that they not influenceper capita income throughother channels, that is, be with the errorterm.We have seen that human capital is an important uncorrelated current determinant economic growth.The importanceof malaria in determining of of income pointsin the same direction. Could the influence AJR's proposedinstruments on today's developmentwork through human capital? Put differently, perhaps when on rather thanconstraints the colonizerssettled, withthemtheir know-how theybrought executive. and betweensettler density mortality 1500 population Figures2-5 showtherelationship on the one hand, and total years of schooling in 1960 and 2000 on the other.These and correlations even stronger are thanthose betweensettler mortality the measuresof and betweensettler institutions. example,thecorrelation For mortality yearsof schooling in 2000 is - 0.73. to of Some additional evidenceon theimportance humancapital,anditsrelationship the for comes from small sample of countries whichwe have data the proposedinstruments, in on primary school enrollments 1900. Figure6 shows thatthismeasureof educational
malaria. settler and Table10. Institutions, mortality contemporaneous Variables Dependent Executive Constraints (1960-2000) Log settler mortality at of Population risk malaria (1994) Observations R2 - 0.435lb (0.1965) - 1.5215a (0.5504) 74 0.36 Expropriation Risk (1982-1997) - 0.3543b (0.1764) - 0.9679b (0.3731) 66 0.32 Autocracy Alvarez (1960-1990) 0.0938c (0.0507) 0.4397a (0.1597) 74 0.29 Government Effectiveness (1998-2000) - 0.2034b (0.0918) - 0.7745a (0.2133) 77 0.43
includea The of for Notes:The tableshowsOLS regressions the cross-section countries. specifications All in are standard errors shown parentheses. in constant we do notreport estimates thetable.Robust but the definitions in theappendix. are at Significant 1 percent. at Significant 5 percent. at Significant 10 percent.
29 1
2. (1960) andlog settler Figure Yearsofschooling mortality.
3. in (1960) andlog population Figure Yearsofschooling density 1500.
292
EDWARDL. GLAESERET AL.
4. (2000) andlog settler Figure Yearsofschooling mortality.
in 5. (2000) andlog population Figure Yearsofschooling density 1500.
293
6. schoolenrollment (2000) andprimary (1900). Figure Log GDP percapita
a investment century is a strong of today. ago predictor thelevel of economicdevelopment 7 and 8 further show that this measure of education is strongly Figures negatively This correlatedwith the proposed Acemoglu, Johnson,and Robinson instruments. evidencemayfurther introduced that humancapital,bothtodayand as historically suggest by thecolonizers,driveseconomicgrowth. in Table 11 further the of investigates effects humancapital and politicalinstitutions the instrumental variablesframework. present first second stageresultsfrom We the and the IV estimation the impactof average years of schoolingbetween 1960 and 2000, of and averageexecutiveconstraints over the same period,on log GDP per capita in 2000. As instruments, use French legal origin, log settler mortality, we and log 1500 are (the last two used one at a time).The AJRinstruments important populationdensity determinants both executive constraints of and years of schooling in the first-stage while Frenchlegal origincountries on have a lower level of constraints the regressions, executive, consistentwith La Porta et al. (1999). In the second-stage regression, of determinant however,the predicted years of schooling are a statistically significant in but executiveconstraints not. If anything, the IV framework are per capita income, human capital seems to be a more important variable predictingdevelopmentthan political institutions. We do not wish to push these resultstoo far. By our own logic, humancapital and institutions not the only potentially are important baggage thatthe Europeancolonizers have brought with term. and with error the stillbe correlated them, so theinstrument might and steel" among otherthings(Diamond, 1997; Engerman They brought "guns, germs,
294
school enrollment (1900) andlog settler Figure7. Primary mortality.
8. schoolenrollment in (1900) andlog population Figure Primary density 1500.
DO INSTITUTIONSCAUSE GROWTH? instrumental variable Table11. Economic development, regressions. PanelA: Second-stage regressions (1) Yearsof schooling1960-2000) ( Executive constraints (1960-2000) in Shareofpopulation living zone temperate (1995) Observations R2 PanelB: First -stage regressions Executive Constraints (1960-2000) in Shareofpopulation living zone temperate (1995) Log settler mortality in Log population density 1,500 French legalorigin Observations R2 for F-Test excluded instruments Correlation predicted of valuesof constraints years and of executive schooling - 0.1195 (0.7202) - 0.8212a (0.2053) - 1.4124a (0.4258) 47 0.53 17.23 0.8182 0.7894a (0.2753) -0.3432 (0.2577) - 1.6969 (1.2053) 47 0.31 variable log GDP percapita 2000 is in Dependent (2) 0.4836b (0.1875) -0.2965 (0.2410) - 0.0863 (0.7714) 55 0.5 variables Dependent Yearsof Schooling (1960-2000) 3.4975a (0.8044) - 1.0183a (0.2293) - 0.3770 (0.4757) 47 0.70 Executive Constraints (1960-2000) - 0.0353 (0.8359) - 0.3737b (0.1582) - 1.1988b (0.4538) 55 0.25 4.70 0.8163
295
Yearsof Schooling (1960-2000) 2.8397a (0.8933) - 0.6140a (0.1691) - 0.5329 (0.4850) 55 0.55
Notes:The tableshowsinstrumental variables for of PanelA reports regressions thecross-section countries. thesecond-stage estimates from instrumental variables with estimates shown Panel in regressions first-stage B. The dependent in variable both is second-stage specificationsthelog of GDP percapitain 2000.PanelB the for estimates two sets of instruments. first The instruments executive reports first-stage specification constraints yearsof schooling and and The second usingthelog of settler mortality French legal origin. and instruments executive constraints yearsof schooling in specification usingthelog of population density in 1500and French The specifications bothstagesinclude constant we do notreport a but the legalorigin. estimates thetable.Robust in standard errors reported parentheses. variables defined the are in All are in appendix. at aSignificant1 percent. at Significant 5 percent. at Significant 10 percent.
296
andSokoloff, of settlement through work and channels, 1991).Theeffects colonial many theinstruments in theliterature nottellus which used do channel matters. Evenifone the the the accepts viewthat variables proposed AJR(2001,2002) shaped European by settlement with their thedatado nottellus whether Europeans the brought them patterns, humancapital,politicalinstitutions, something else. The instrumental variable or doesnottellus what causesgrowth. approach
6. FromSchooling Institutions to As a final outcomes comefirst, we whether or wayto understand schooling institutional follow Barro If come then values andlookattiming. institutions first, lagged (1997,1999) ofpolitical ineducation. education the If is critical variables should predict improvements in thenlaggedvalues of education shouldpredict input, improvement institutional in outcomes. the PanelofTable12,weregress, In top intervals, using 5-year growth years measures political of schooling country on fixed initial and of effects, schooling, initial levelofGDP percapita. The institutions inthegrowth used literature wellas theinitial as a large datashowsomemean reversion schooling in duetomeasurement error), (perhaps of of and andpositive effect initial of levelofincome thegrowth education, noeffect on on of initial no how institutions,matter measured, thegrowth human capital. political intervals in institutions 5-year over In the bottom we changes political panel, lookatthe initiallevel of economic initialschooling, as a function country of fixedeffects, are themselves. results The institutions and levelsofthese development, initial political institutional of Initiallevels of schooling a strong are striking. predictor improving executive outcomes thenext years three ofthefour out over 5 measures, including using as there constraints. percapita Initial income nopredictive has And, wesawbefore, power. is a lotofmeanreversion these in measures institutions. of are as As before, do notwantto taketheseresults dispositive. we However, they leadsto institutional consistent theLipsetviewthat with capital highhuman strikingly like of short of even Moreover, many the improvement, overa relatively horizon 5 years. with the are earlierfindings presented, results inconsistent the view thathigh we in institutions assessments political of subsequent improvement theyearsof predict schooling.
7. Conclusion has and institutions economic the between extremely growth proved Exploring causallink does research the and difficult. efforts, existing strategy not Despitecreative insightful of with this due establish link, toboth conceptual problems themeasurementinstitutions
297
Table 12. Changes in schoolingand changes in institutions. Change Executive Constraints Change AutocracyPolityIV Change AutocracyAlvarez
Change Democracy - 0.06913 (0.0239) 0.28253 (0.0793)
Panel A: Dependent variable is the5 -yearchange in years of schooling (t 4- 5, /) - 0.0721a - 0.0460 - 0.0707a Years of schooling (r) Log GDP per capita (/) Executive constraints (/) IV Autocracy-Polity (/) Autocracy-Alvarez(t) Democracy (t) Observations R2 514 0.24 420 0.26 514 0.24 (0.0237) 0.2839a (0.0790) - 0.0099 (0.0118) (0.0339) 0.39783 (0.1055) (0.0250) 0.28093 (0.0797)
0.0373 (0.0391) 0.0065 (0.0080) - 0.0094 (0.0074) 514 0.24
Panel B: Dependent variables are the 5 -year changes in political institutions = 5, t) (t - 0.90923 - 0.0958 Years of schooling (t) 0.49753 Log GDP per capita (/) Executive constraints (/) IV Autocracy- ft>lity (t) Autocracy- Alvarez (/) Democracy (t) Observations R2 499 0.33 499 0.32 349 0.47 (0.1191) 0.0382 (0.4035) - 0.57243 (0.0716) (0.1790) 0.5075 (0.6295) - 0.54713 (0.0680) - 0.86423 (0.1032) (0.0707) - 0.2675 (0.2022)
0.70043 (0.1804) 0.2918 (0.6055)
-0.51453 (0.0650) 499 0.30
Notes: The table shows OLS regressionswith countryfixed effectsfor the cross-sectionof countries.The include a constantand countryfixed effectsbut we do not reportthe estimates in the table. specifications Errorsare clusteredat the country level and reported parentheses. in All definitions in the appendix. are Significantat 1 percent. Significant at 5 percent. Significantat 10 percent
and thelimitations econometric of In the research does not techniques. particular, existing showthat institutions rather thanhumancapitalhave a causal effect economic on political of and Indeed,muchevidencepointsto theprimacy humancapitalforbothgrowth growth. democratization. Our results consistent are witha perspective institutions on outlinedby Djankov et al.
298
faces a set of institutional (2003). Accordingto that opportunities, paper,each community determined largelyby the humanand social capital of its population.The greaterthe human and social capital of a community, the more attractiveits institutional in are points on this opportunity set, Institutions, this framework, opportunities. are because determined efficiency, and politics.Institutions highly persistent by history, outcomesalso colonial history, history, including shapes social choices. But institutional opportunities improve. get betteras the society grows richer,because institutional in have onlya second-order effect economic on institutions Importantly, thatframework, The effect comes from humanand social capital,whichshapeboth order performance. first institutional productive and capacitiesof a society. Our resultshave some implications economic researchand foreconomic policy. for that research in institutional economics, and in particularon the They suggest must focus on actual rules, consequences of alternativeinstitutional arrangements, outcomes. The ratherthan on conceptuallyambiguous assessments of institutional do is resultsof thispaper do not show that"institutions not matter/'That proposition contradicted a greatdeal of available empiricalevidence,includingour own. flatly by measurement Rather,our results suggest that the current strategieshave conceptual and that researcherswould do better focussing on actual laws, rules, and flaws, compliance proceduresthatcould be manipulatedby a policy maker to assess what works. With respect to policy, our results do not support the view that, from the democratization and and economic development, perspectiveof securityof property constraints government on must come first.In many poor countries,such security came frompolicy choices made by dictators.The economic success of East Asia in the post war era, and of China most recently, has been a consequence of good-forthem. Indeed, the Chinese example not of institutions dictators, growth constraining about Deng, one of the illustrates therewas nothing this point forcefully: pre-destined it best dictators growth, for succeedingMao, one of the worst.More generally, might be less profitable look for the "deep" factorsexplainingeconomic development to than for policies favoring human and physical capital accumulation (see also Przeworski2004a, b). as on of None of thisis to denythemerits democracyand theconstraints government essential human values in theirown right.Mulligan et al. (2004) presentcompelling and death penalty, evidence thatin such policy areas as freedomof the press, torture, But morebenignthandictatorships. of democraciesare significantly regulation religion, in with of abouttheviability democracy countries ourevidence suggestssome skepticism low level of humancapital therehave been few examples of such democraciesin the view of the thatthe Lipset-Przeworski-Barro world. Our evidence suggestsin contrast world is more accurate: countriesthat emerge frompovertyaccumulate human and are and physicalcapital underdictatorships, then,once theybecome richer, increasingly to improvetheirinstitutions. likely
299
Appendix. Variable definitions

Variable Measures of institutions Executiveconstraints Definition
A measureof the extentof institutionalized constraints the decision making on values: (1) powersof chiefexecutives.The variabletakes seven different on Unlimited (thereare no regularlimitations the executive's actions, authority of as distinct fromirregular limitations such as the threat actuality coups and or on assassinations); Intermediate (2) category;(3) Slightto moderatelimitation executiveauthority on (thereare some real but limitedrestraints theexecutive); limitations executiveauthority on (4) Intermediate (the category;(5) Substantial executivehas moreeffective thanany accountability authority groupbut is constraints them);(6) Intermediate by category;(7) subjectto substantial Executiveparity subordination or (accountability groupshave effective This thantheexecutivein mostareas of activity). authority equal to or greater extentof variablerangesfromone to seven wherehighervalues equal a greater institutionalized constraints thepower of chiefexecutives.This variableis on calculatedas the average from1960 through 2000, or forspecificyearsas and Marshall (2000). needed in the tables.Source: Jaggers based on: (1) the A measureof the degreeof democracyin a given country Democracy of (2) competitiveness politicalparticipation; the opennessand competitiveness and on of executiverecruitment; (3) theconstraints the chiefexecutive.The variablerangesfromzero to ten,wherehighervalues equal a higherdegreeof This variableis calculatedas theaverage from institutionalized democracy. 1960 through 2000, or forspecificyearsas needed in the tables. Source: and Marshall(2000). Jaggers in based on: (1) the IV A measureof the degreeof autocracy a given country Autocracy-Polity of of (2) competitiveness politicalparticipation; the regulation political of (3) participation; the opennessand competitiveness executiverecruitment; and (4) constraints the chiefexecutive.This variablerangesfromzero to ten on This wherehigher values equal a higher degree of institutionalized autocracy. variableis calculatedas the average from1960 through 2000, or forspecific and Marshall (2000). yearsas needed in thetables. Source: Jaggers and This risk Risk of "outright confiscation forcednationalization"of property. Expropriation variablerangesfromzero to ten wherehighervalues are equals a lower This variableis calculatedas the average from of probability expropriation. 1982 through 1997, or forspecificyearsas needed in the tables. Source: International Risk Guide at http://www.countrydata.com/datasets/. Country This variableclassifiesregimesbased on theirdegreeof autocracy. Democracies Autocracy-Alvarez are coded as 0, bureaucracies witha legislature)are coded as 1 (dictatorships and autocracies(dictatorship without legislature)are coded as 2. Transition a This variableranges yearsare coded as theregimethatemergesafterwards. from zero to two wherehighervalues equal a higherdegreeof autocracy. This variableis measuredas the average from1960 through 1990; or forspecific yearsas needed in thetables. Source: Alvarez et al. (2000). the Government effectiveness This variablemeasuresthe qualityof public serviceprovision, qualityof the the the of bureaucracy, competenceof civil servants, independence the civil and the credibility the government's of servicefrompoliticalpressures, to commitment policies. The main focus of thisindex is on "inputs" required to forthegovernment be able to produceand implement good policies and deliverpublic goods. This variablerangesfrom - 2.5 to 2.5 wherehigher values equal higher effectiveness. This variableis measuredas the government 2000. Source: Kaufmanet al. (2003). averagefrom1998 through
300
Appendix. Continued.
Variable Judicialindependence Definition Judicialindependence computedas the sum of threevariables.The first is measuresthetenure SupremeCourtjudges (highestcourtin any country) of and takes a value of 2- if tenure lifelong,1- if tenure morethansix years is is but not lifelong, and 0- if tenureis less thansix years.The second measures thetenure the highest of ranked cases and takes judges rulingon administrative a value of 2- if tenureis lifelong,1- if tenureis more thansix yearsbutnot is measurestheexistenceof 0 lifelong, - if tenure less thansix years.The third case law and takes a value of 1 ifjudicial decisions in a givencountry a are source of law and 0 otherwise. The variableis normalizedfrom zero to one This wherehigher values equal a higherdegree of judicial independence. variableis measuredas of 1995. Source: La Portaet al. (2004). variable Constitutional reviewis computedas the sum of two variables.The first measurestheextentto whichjudges (eitherSupremeCourtor Constitutional of court)have thepower to reviewthe constitutionality laws in a given country. The variabletakesthreevalues: 2- if thereis fullreviewof constitutionality of of laws, 1- if thereis limitedreviewof constitutionality laws, 0- if thereis no reviewof constitutionality laws. The second variablemeasures(on a scale of in from1 to 4) how hardit is to change the constitution a given country. One of the pointeach is given if the approvalof the majority the legislature, chief An of stateand a referendum necessaryin orderto change theconstitution. is in additionalpointis given foreach of the following:if a supermajority the (more than66% of votes) is needed,if bothhouses of the legislature legislature in has have to approve,if the legislature to approvethe amendment two of or consecutivelegislativeterms if the approvalof a majority statelegislature values This variableis normalizedfromzero to one wherehigher is required. reviewby the courts.This variableis equal a higher degreeof constitutional measuredas of 1995. Source: La Pbrtaet al. (2004). were elected using This variableis equal to one foreach year in whichlegislators This variableis measuredas a winner-take-all rule; it equals zero otherwise. the average from1975 through 2000. Source: Beck et al. (2001). This variableis equal to one foreach year in whichcandidateswere elected using a proportional Proportional representation system;equals zero otherwise. of means thatcandidatesare elected based on thepercentage representation This variableis measuredas the average from votes receivedby their party. 1975 through 2000. Source: Beck et al. (2001). zone in 1995. of temperate Percentage a country's populationin Koeppen-Geiger Data Sets. Found Source: CenterforInternational Geography Development, online at: http://www2.cid.harvard.edu/ciddata/ geographydata.htm#General%20measures%20of%20geography. at rate Log of the mortality faced by Europeansettlers the timeof colonization. and Source: Acemoglu,Johnson, Robinson(2001). Total populationdivided by totalarable land in 1,500 A.D. Source: McEvedy and and Robinson(2002). Jones(1978) as cited in Acemoglu,Johnson, in of Percentage thepopulationat riskof malaria transmission 1994. Source: WorldHealth Organization (1997). Malaria Ecology,population-weighted, 2003 version.This variableprovides Sept an instrument malariariskthatcontrolsforthe factthatcausationmay run for not onlyfrommalariato income but also fromincome to malaria.The basic formula malariaecology includestemperature, for species abundance,and
Constitutional review
Plurality
Proportional representation
Other variables
Share of populationliving in temperate zone Log settler mortality Populationdensityin 1,500 Populationat riskof malaria Malaria ecology
30 1
Appendix. Continued.
Variable Definition vector (thetype mosquito). underlying is measured a of The index on type sub-national andthen averaged theentire is for level, highly disaggregated malaria Because is and country. ecology built upon climatological vector conditions a country-by-countryitis exogenous public on to health basis, interventions economic and conditions. Source: Kiszewski al. (2004). et Yearsofschooling thetotal of is population over25. Thisvariable aged constructedtheaverage as from 1960through as 2000;orfor years specific needed thetables. in Barro Lee (2000).Data posted http:// and on Source: www.cid.harvard.edu/ciddata/ciddata.html measures school enrollmenta percentage children as of Thisvariable primary 14. in Lindert (2001). aged5 through Measured 1870,1890,and 1900.Source: Identifies legalorigin thecompany orcommercial ofeachcountry the of law code and Source: Porta al. La et French, Socialist, German, Scandinavian). (English, (1999). over Aten al. (2002).Data et Gross domestic Source: product population. available on-line http://pwt.econ.upenn.edu/ usesdatafrom at: the (this paper GDP percapita the1870-1950 for comes from 04-06-2003 version). period Maddison (2003).
Yearsofschooling
school Primary enrollment Legalorigin GDP percapita
Acknowledgment Wethank Olivier OdedGalor, Simon Aart Blanchard, Johnson, Kraay, Philippe Aghion, Dani Rodrik and an anonymous referee helpful Ross Levine,Torsten for Persson, and assistance. Brown research for comments, Sebastian
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Do Institutions Cause Growth? Author(s): Edward L.

Do Institutions Cause Growth?

EDWARDL. GLAESER ET AL.

1. constraints North versus South Korea. 1948-2001 Figure Executive

EDWARDL. GLAESER ET AL.

DO INSTITUTIONS CAUSE GROWTH?

EDWARDL. GLAESER ET AL.

standard deviation Average within-country 18.53% 17.52%

278 Table2. Persistence political of institutions human and capital.

EDWARDL. GLAESER ET AL.

0.1810c (0.0926) 50 0.07

0.3065b (0.1341) 50 0.10

EDWARDL. GLAESER ET AL.

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DO INSTITUTIONS CAUSE GROWTH?

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0.0067 (0.0066) 27 0.08

EDWARDL. GLAESER ET AL.

DO INSTITUTIONSCAUSE GROWTH? rates Table8. Growth andpolitical regimes. YearsofSchooling (1960)

EDWARDL. GLAESER ET AL.

DO INSTITUTIONS CAUSE GROWTH?

EDWARDL. GLAESER ET AL.

DO INSTITUTIONS CAUSE GROWTH?

2. (1960) andlog settler Figure Yearsofschooling mortality.

3. in (1960) andlog population Figure Yearsofschooling density 1500.

EDWARDL. GLAESERET AL.

4. (2000) andlog settler Figure Yearsofschooling mortality.

in 5. (2000) andlog population Figure Yearsofschooling density 1500.

6. schoolenrollment (2000) andprimary (1900). Figure Log GDP percapita

EDWARDL. GLAESER ET AL.

school enrollment (1900) andlog settler Figure7. Primary mortality.

8. schoolenrollment in (1900) andlog population Figure Primary density 1500.

EDWARDL. GLAESER ET AL.

DO INSTITUTIONS CAUSE GROWTH?

Change Democracy - 0.06913 (0.0239) 0.28253 (0.0793)

0.0373 (0.0391) 0.0065 (0.0080) - 0.0094 (0.0074) 514 0.24

0.70043 (0.1804) 0.2918 (0.6055)

-0.51453 (0.0650) 499 0.30

EDWARDL. GLAESER ET AL.

DO INSTITUTIONS CAUSE GROWTH?

Appendix. Variable definitions

EDWARDL. GLAESER ET AL.

school Primary enrollment Legalorigin GDP percapita

EDWARDL. GLAESER ET AL.

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