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The formal and informal institutional framework of capital accumulation

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  • Méon, Pierre-Guillaume
  • Sekkat, Khalid

Abstract

This paper studies the impact of social trust and formal legal institutions on capital accumulation in a panel of countries. The results not only confirm that both social trust and the quality of formal legal institutions have a positive impact on capital accumulation, but also show that they are substitutes. Specifically, the impact on capital accumulation of an upgrade of the quality of formal legal institutions is larger when social trust is low than when social trust is high, and vice versa. These findings apply both to total investment and to its foreign component, foreign direct investment.

Suggested Citation

  • Méon, Pierre-Guillaume & Sekkat, Khalid, 2015. "The formal and informal institutional framework of capital accumulation," Journal of Comparative Economics, Elsevier, vol. 43(3), pages 754-771.
    • Handle: RePEc:eee:jcecon:v:43:y:2015:i:3:p:754-771
    DOI: 10.1016/j.jce.2014.07.001
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    More about this item

    Keywords

    Investment; Foreign direct investment; Formal legal institutions; Trust;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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