Discussion Paper Details

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Title: Income Growth and Institutional Quality: Evidence from International Oil Price Shocks

Author(s): Markus Brückner and Mark Gradstein

Publication Date: March 2012

Keyword(s): Income growth and Institutional quality

Programme Area(s): Development Economics, International Macroeconomics and Public Economics

Abstract: In this paper, we study the causal effect of income growth on institutional quality in the 1984-2007 cross country panel. To focus on exogenous income windfalls, we employ international oil price shocks as an instrument for income growth. While national incomes and measures of institutional quality are highly correlated, our analysis fails to identify a clear pattern of a causal effect, and estimations often yield statistically insignificant coefficients, albeit with positive signs. We then explore the possibility that fixed country characteristics may mediate the effect of income on institutions. Focusing on measures of ethnic heterogeneity, we find that ethnic polarization acts adversely as a mediating factor in this regard.

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Bibliographic Reference

Brückner, M and Gradstein, M. 2012. 'Income Growth and Institutional Quality: Evidence from International Oil Price Shocks'. London, Centre for Economic Policy Research.