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Market Institutions and Factor Shares Across Countries

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  • Dawson, John W.
  • Sturgill, Brad

Abstract

This paper examines the relationship between institutions and the income shares of key factors of production across countries. We extend previous work in this area by considering the unskilled labor and human capital components of the total labor share along with the shares of physical capital and natural capital. We introduce a four-factor production framework to derive empirical specifications for these factors. In a cross-section of 75 countries, we find the positive relationship between market institutions and the total labor share is driven by its underlying human capital component—an effect appearing predominantly in lower- and middle-income countries. Market institutions are negatively related to the total capital share and its physical capital component, especially in middle- and upper-income countries. Political institutions have a small or statistically insignificant effect in explaining factor shares after controlling for economic institutions. The results provide insight into the dynamics of factor shares over the development process.

Suggested Citation

  • Dawson, John W. & Sturgill, Brad, 2022. "Market Institutions and Factor Shares Across Countries," Structural Change and Economic Dynamics, Elsevier, vol. 60(C), pages 266-289.
    • Handle: RePEc:eee:streco:v:60:y:2022:i:c:p:266-289
    DOI: 10.1016/j.strueco.2021.11.011
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