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Geography matters more: geographical and institutional determinants of income in Brazilian states

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  • Fernanda Llussa

Abstract

Brazil displays a geographic and institutional diversity unique in the world. It extends in a north-south direction rather than the east-west of other countries of similar size. Given the current debate on the relative role of geography and institutions in determining income levels, Brazil provides a single testing ground for the direct and indirect effects of geography. This paper evaluates how much of the income di¤erences across Brazilian regions and states stem from geographic characteristics and institutional characteristics, the latter in turn partly determined by geography. Our results show, frst, that the rate of convergence of state income per capita increases substantially once regional e¤ects are taken into account. Second, institutions, when instrumented with regional dummies, are a significant determinant of state income levels. However, when we add additional geographic characteristics, some institutions cease to significantly affect income. The message from Brazilian data seems to be that, tough geography and institutions matter for income, geography matters more.

Suggested Citation

  • Fernanda Llussa, 2007. "Geography matters more: geographical and institutional determinants of income in Brazilian states," Nova SBE Working Paper Series wp517, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp517
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    More about this item

    Keywords

    Economic growth; geography; institutions;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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