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

Shanaev, Savva and Wanjiru, Roseline (2020) New Evidence on the Institutional Causes of Economic Growth: Using Peer Pressure to Unbundle Institutions across Countries. In: How Crossing Borders Changes Business: How Crossing Borders Changes Business. Academy of International Business, East Lansing, MI, pp. 1-43. (In Press)

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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.

Item Type: Book Section
Uncontrolled Keywords: economic growth, instrumental variables, institutions, international trade, political pressure, property rights
Subjects: L100 Economics
L200 Politics
N100 Business studies
Department: Faculties > Business and Law > Newcastle Business School
Depositing User: John Coen
Date Deposited: 20 Jul 2021 13:14
Last Modified: 20 Jul 2021 13:15
URI: http://nrl.northumbria.ac.uk/id/eprint/46720

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