New Evidence on the Institutional Causes of Economic Growth: Using Peer Pressure to Unbundle Institutions across Countries

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Abstract

This study presents a new framework of assessing the causal effect of institutions on economic growth via exploiting the exogenous variation in institutions triggered by “peer pressure” exerted on governments by other states, affecting policy decisions and the environment national and international businesses operate in. The applied method reinforces the importance of institutional factors for economic outcomes and allows to effectively address the data quality and instrument validity concerns surrounding earlier studies. Most importantly, the “peer pressure” method allows to distinguish between influences of various institutions, answering not only the question whether, but also which institutions do matter for growth. The study shows that the proposed method has significant power to “unbundle institutions” and finds that property rights protection and financial freedom are more important for growth than democracy, constraint on the executive, legal origins, or business freedom, even when controlled for human capital. The developed method has significant applicability in future research of institutional and cultural impact on international business and economic outcomes.
Original languageEnglish
Title of host publicationHow Crossing Borders Changes Business
Subtitle of host publicationHow Crossing Borders Changes Business
Place of PublicationEast Lansing, MI
Publisher Academy of International Business
Pages1-43
Number of pages43
Publication statusPublished - 6 Jul 2020
EventAIB 2020 Online: How Crossing Borders Changes Business - Online
Duration: 1 Jul 20209 Jul 2020
https://www.aib.world/events/2020/

Conference

ConferenceAIB 2020 Online
Period1/07/209/07/20
Internet address

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