Rodrik, Subramanian, and Trebbi (2002) contribute to the discussion on the impact of geography, institutions and international trade on cross-national differences in income levels. They find that only institutions exert a significant direct impact on incomes. Meanwhile, international trade has no direct effect and geography has at best weak direct effects on incomes.
Examining its empirical framework, I find that the way the study measures geography is inadequate and that the framework therefore does not treat the three “deeper determinants” equally in the sense of giving the geography-hypothesis a smaller chance to prevail. Based on this finding, the underlying structure is adjusted and developed further to provide an improved basis for future analyses.
Table of Contents
1 Introduction
2 Instruments
2.1 AJR instrument
2.2 FR- instrument
3 Measures of geography
4 Empirical framework
5 Conclusion
Research Objective and Core Topics
The primary objective of this paper is to critically evaluate the empirical framework presented by Rodrik, Subramanian, and Trebbi (2002) regarding the determinants of cross-national income variations, specifically focusing on the interplay between geography, institutions, and international trade.
- The primacy of institutions vs. the impact of geography and trade
- Methodological critique of instruments used for institutional quality and trade
- Evaluation of malaria measurement and its role as a geographical variable
- Advancement of the empirical framework for future economic analyses
Excerpt from the Book
3 Measures of geography
RST finds that geography has only a small direct impact on incomes, and predominately influences incomes through its effect on the quality of institutions. This is deducted from RST, table 2, panel B, which reports the two-stage least squares estimates of the three coefficients of interest. The coefficients on geography and integration are negative and insignificant, whereas the coefficient on institutions is high and significant. I was surprised by this result because it seemed intuitive to me that the geographical circumstances which influenced settler mortality in the past also have direct impacts on the income situation in the respective countries today. A good example for this is the disease burden, which influenced the settler mortality in the past, but still today could (and after logical conclusion should) have a direct impact on income differences through its impact on productivity. Consequently, I agree with Sachs (2003) that the logic of the geography- institutions linkage is also the logic of a direct geography-productivity linkage.
Starting point in the investigation on the origins of this difference between logical conclusions and RST´s results is its preferred measure of geography, which is distance from equator. I agree with Sachs (2003) that this measure is not the best choice for estimating the effect from geography on income. It is at best a proxy, and a poor one as Sachs (2003) notes, for climate or distance from major markets.
To prevent criticism like this, RST checks the robustness of their results regarding alternative measures of geography. They substitute in their baseline specification various measures such as the number of frost days per month, the prevalence of malaria, whether a country is an oil exporter, and mean temperature. The results are reported in RST, table 5. None of the variables enters significantly, except from the oil dummy. Furthermore the estimate of the institutional variable is not changed qualitatively.
Summary of Chapters
1 Introduction: Provides an overview of the debate concerning the factors behind cross-national income disparities and introduces the scope of the review.
2 Instruments: Examines the validity and appropriateness of the AJR settler mortality instrument and the FR trade instrument used to address endogeneity.
3 Measures of geography: Critically analyzes the geographical variables used in the original study, with a specific focus on the limitations of malaria measurement.
4 Empirical framework: Discusses the structure of the regression model and proposes adjustments to better account for endogenous variables like disease ecology.
5 Conclusion: Summarizes the findings of the critique and emphasizes the need for more complex frameworks in future economic development research.
Keywords
Economic growth, Geography, Institutions, International trade, Malaria, Settler mortality, Instrumental variables, Income disparities, Disease ecology, Empirical framework, Two-stage least squares, Economic development, Cross-national variation
Frequently Asked Questions
What is the primary focus of this academic paper?
The paper is a critical review of the study by Rodrik, Subramanian, and Trebbi (2002), which investigates how geography, institutions, and international trade affect cross-national differences in income levels.
What are the central thematic pillars of the analysis?
The central pillars are the "deeper determinants" of economic growth: institutional quality, geographical conditions, and international trade integration.
What is the core research goal of the author?
The goal is to test the robustness of the original framework, identify potential biases in the measurement of geographical variables, and propose an improved, more accurate model for future research.
Which scientific methods does the paper scrutinize?
The paper evaluates the two-stage least squares estimation procedure, specifically focusing on the validity of the AJR settler mortality instrument and the FR trade-share instrument.
What topics are discussed in the main body?
The main body covers the instrumentation strategies for institutions and trade, a deep dive into geographical proxies like malaria prevalence, and the structural design of empirical models used in development economics.
Which keywords best characterize this research?
Key terms include economic growth, institutions, geography, malaria, settler mortality, and instrumental variables.
Why does the author consider the measurement of malaria in the original study to be flawed?
The author argues that the "MALFAL" index is problematic due to reporting biases, difficulties in causal attribution of death, and the fact that malaria prevalence is itself endogenous to economic and social conditions.
What specific alternative to existing malaria measures is mentioned?
The paper suggests using a measure of "Malaria Ecology" (ME), which combines climate and vector data, as it is considered exogenous to institutional quality and less prone to registration errors.
- Citar trabajo
- Peter Hartlieb (Autor), 2015, A Review of "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development", Múnich, GRIN Verlag, https://www.grin.com/document/315671
