Greg PhD Conference 2012

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Greg PhD Conference 2012

  1. 1. INSTITUTIONS THAT MATTERFOR ECONOMIC PERFORMANCE Greg Lopez, PhD candidate Crawford School of Public Policy Crawford School PhD Conference 27 November 2012
  2. 2. OUTLINE Motivation Research question Model Results & discussion 2
  3. 3. MOTIVATION The age old question on economic growth: “What makes some countries rich, and others poor?” “Why are some countries stuck in a “middle income trap?” “Asian Century” Institutions rule! 3
  4. 4. RESEARCH QUESTION Do institutions matter for economic performance? Which ‘type’ of institutions matter at the different levels of economic development? 4
  5. 5. STOCHASTIC FRONTIER MODEL Optimal output Deterministic frontier Output BYiii Random effectsYii Inefficiency effectsYi A Observed/actual output Input Xi 5
  6. 6. MAIN MODEL SPECIFICATION ln(Y/L)i = ß0 + ß1 ln(K/L) + ß2 ln(H/L)+ vi – ui (Y/L) – output per worker (K/L) – capital per worker (H/L) – human capital per worker 6
  7. 7. INEFFICIENCY TERM ui = ð0 + ð1latitudei + ð2ELF + ð3openessi + ð4governance + W Where ui is country i’s inefficiency Wi is the random variable defined by the truncation of the normal distribution Latitude, Openness and Fractionalisation (ELF) are control variables Governance is the relevant index of 7 governance.
  8. 8. Variable Coefficient t-statsIntercept β0 8.409 60.520*ln K/L β 1 0.272 20.736*ln H/L β 2 0.105 3.531*Inefficiency Intercept δ0 1.057 14.360*Latitude δ1 -0.013 -13.025*ELF δ 2 0.052 0.708Openness δ 3 -0.001 -1.040VA δ 4 -0.480 -10.731*PV δ5 0.143 3.882*GE δ6 -0.573 -9.888*RQ δ7 -0.002 -0.031RL δ8 0.281 4.496*CC δ 9 -0.425 -10.919* 2Sigma2 σ 0.437 19.772* 8Gamma γ 0.703 20.023*
  9. 9. Variable OECD UMIE LIEIntercept ( β 0 ) 10.562 (68.28)* 9.227 (88.408)* 6.938 (67.415)*ln K/L ( β1 ) 0.036 (3.414)* 0.101 (8.658)* 0.329 (27.491)*ln H/L ( β 2 ) 0.039 (0.751) 0.025 (0.985) 0.055 (1.568)***Inefficiency Intercept ( δ 0 ) 0.966 (5.296)* 0.254 (2.059)** -2.896 (-7.418)*Latitude ( δ1 ) 0.007 (3.537)* 0.001 (0.382) -0.104 (-22.554)*ELF ( δ 2 ) -0.454 (-1.543)** -0.568 (-3.703)* -2.049 (-6.495)*Openness ( δ 3 ) 0.001 (0.914) -0.002 (-1.767)** -0.053 (-28.855)*VA ( δ 4 ) 0.762 (3.321)* -0.201 (-2.364)** -2.535 (-15.277)*PV ( δ 5 ) -0.189 (-1.637)*** 0.309 (5.315)* 1.515 (9.386)*GE ( δ 6 ) -0.386 (-3.091)* -0.729 (-6.165)* -2.386 (-9.669)*RQ ( δ 7 ) 0.165 (0.870) 0.308 (3.003)* 0.418 (2.369)**RL ( δ 8 ) -1.125 (-4.26)* -0.596 (-4.078)* 0.920 (2.929)*CC ( δ 9 ) -0.019 (-0.436) 0.648 (5.633)* -2.212 (-12.354)* 2Sigma2 ( σ ) 0.064 (8.842)* 0.070 (10.704)* 2.555 (22.529)* 9Gamma ( γ ) 0.357 (5.147)* 0.289 (3.688)* 0.944 (139.073)*
  10. 10. FINDINGS - 1 Institutions do matter: Better institutions, measured by governance indicators, is related – in general – to better economic performance. Among the six governance indicators, when tested against each other, ‘Government Efficiency’ mattered the most. 10
  11. 11. FINDINGS - 2 What institutions, at what level: For low- and middle-income countries, ‘Government Efficiency’ was the most significant governance indicator At the high-income (only OECD), ‘Rule of Law’ was the most important governance indicator. 11

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