Essays on institutions and the other deep determinants of economic development

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School of Business | Doctoral thesis (article-based) | Defence date: 0000-00-00
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Author
Date
2008
Department
Major/Subject
Kansantaloustiede
Economics
Mcode
Degree programme
Language
en
Pages
193 s.
Series
Acta Universitatis oeconomicae Helsingiensis. A, 330
Abstract
This dissertation consists of four essays on the three deep, or fundamental, determinants of economic development. The focus is on institutions but trade openness and geography are not completely forgotten either. The first essay studies the changes in the distribution of labor productivity between 1980 and 2000 in various groups of countries. Data envelopment analysis (DEA) is used to decompose the changes into changes in technical efficiency and best practice technology as well as physical and human capital accumulation. The results suggest that, in contrast to the development in high-income countries, labor productivity did not improve in developing economies during the two decades: the positive effect of improved efficiency was nullified by technological implosion and contraction in physical capital accumulation. The second essay continues to concentrate on technical efficiency. According to the model built in the essay, interactions between foreign aid, debt and efficiency are complicated. The difference and system GMM estimations of the empirical section indicate that aid seems to increase efficiency only in an environment with good policies or institutions. The same applies to external debt, although less robustly. The results also suggest that an inefficiency trap exists so that countries may get stuck in a low-efficiency equilibrium. The third essay examines the impact of corruption on the size of the shadow economy. A model is built to show that bribes to acquire projects have different consequences than bribes paid to reduce taxes. In the empirical analysis, an interaction term of the level of corruption and the tropical area fraction of a country is used to capture differences in the consequences of corruption between countries. IV regressions and bootstrapping indicate that corruption does not affect shadow economy size outside the tropics. Instead, the higher the tropical area fraction of a country, the greater is the enlarging impact of a certain level of corruption on the size of the shadow economy. Moreover, corruption and the shadow economy seem to be substitutes in the tropics. The fourth essay analyzes the relationship between corruption and democratization. The validity of the modernization hypothesis is also assessed. To begin with, the factors that determine the probability and type of democratization are examined through a model. The system GMM estimations of the empirical part do not provide evidence for the modernization hypothesis but imply, instead, that corruption affects changes in the level of democracy negatively. In contrast, the multinomial logit and bivariate probit estimations support the modernization hypothesis through the significant impacts of schooling and GDP per capita. There is likewise evidence of a resource curse: a higher share of fuel exports of merchandise exports inhibits democratization and may increase corruption. Also trade openness seems to have a negative impact on democratization. Both democracy and corruption seem to be highly persistent.
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Supervising professor
Haaparanta, Pertti, professor
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Citation
Permanent link to this item
https://urn.fi/URN:ISBN:978-952-488-267-5
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[diss] Kauppakorkeakoulu / BIZ