Geography, Institutions, and Economic Growth

One of the great debates in economics concerns the determinants of economic development, investment and growth.  Most recently, this literature has focused on whether geography or institutions play the more decisive role in determining economic development.  A major issue in this debate concerns the appropriate treatment of the endogeneity of the economic institutions themselves.  Much of the literature has been concerned with finding valid instruments to control for this endogeneity, or with finding natural experiments in which institutions changed exogenously such as the fall of the Berlin Wall.  It is probably fair to say that explanations centring on key institutions that enforce contractual arrangements and protect property rights from expropriation by the state dominate the literature at the present time.  But recent work has made a persuasive case that both institutions and geography matter by studying the interaction of colonial history and geography to identify the partial effects of institutions and geographical endowments.  An early concern of the growth literature was on how resources move from agriculture to a ‘modern’ manufacturing sector, and another recent theme takes insights on the importance of geography and institutions to return to that earlier issue of how resources move between sectors.  With the importance of ‘clusters’ of institutions now generally accepted, another strand of the literature seeks to identify in greater detail the precise mechanisms through which particular institutions enhance economic activity.

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Acemoglu, D., S. Johnson, and J. A. Robinson (2002);  “Reversal of Fortune: Geography and Institutions in the Making of Modern World Income Distribution.” Quarterly Journal of Economics, 117(4): 1231-1294. [Working paper version]

Acemoglu, D., S. Johnson, and J. A. Robinson (2005); “Institutions as the Fundamental Cause of Long Run Growth.” Published in P.M. Aghion and S.N. Durlauf (eds) Handbook of Economic Growth 1A, 385–472. Amsterdam: Elsevier [Working paper version]

Auer, R. (2013); “Geography, Institutions, and the Making of Comparative Development.” Journal of Economic Growth, 18(2), pages 179-215. [Working paper version]
Dort, T., P.-G. Méon and K. Sekkat (2013); “Does Investment Spur Growth Everywhere? Not Where Institutions Are Weak.” CEB Working Paper N° 13/030. [Working paper version]
Eicher, T., and T. Schreiber (2010); “Structural Policies and Growth: Time Series Evidence from a Natural Experiment” Journal of Development Economics, 91(1): 169-179. [Working paper version]
Gallup, J.L., J.D. Sachs, and A.D. Mellinger (1998); “Geography and Economic Development.” In Annual World Bank Conference on Development Economics 1998 (April), The World Bank: Washington, DC. [Working paper version]
Hall, R.E., and C.I. Jones (1999); “Why Do Some Countries Produce So Much More Output per Worker Than Others?Quarterly Journal of Economics, 114(1): 83-116. [Working paper version]
Hibbs, D., and O. Olsson (2004); “Geography, Biogeography, and Why some Countries are Rich and Others are Poor.” Proceedings of the National Academy of Sciences, 101: 3715-3720. [Working paper version]
Lim, J., (2013) “Institutional and Structural Determinants of Investment Worldwide.” World Bank Policy Research Working Paper 6591. [Working paper version]
Klenow, P.J., and A. Rodriguez-Clare (1997); “The Neoclassical Revival in Growth Economics: Has it Gone Too Far?” Published in B. Bernanke and J. J. Rotemberg (eds.), NBER Macroeconomics Annual. Cambridge and London: MIT Press, pp. 73–103.