Institutions and economic development: panel evidence

Is institutional quality a major driver of economic development? This paper tackles the question by focusing on the within-country variation of growth rates of GDP per capita. While previous attempts using this methodology have controlled for many of the standard de- terminants of the empirical growth literature, we argue that such ap- proach is not adequate if good institutions are the main reason behind decisions to invest in human or physical capital accumulation or to engage in international trade. Our regressions exclude the proximate causes of growth in order to estimate the overall e§ect of institutional quality. Perhaps surprisingly, we Önd no support for the thesis that in- stitutional quality improves economic growth. These results encourage a reconsideration of the evidence provided elsewhere in the literature.