Journal on Policy and Complex Systems
Table 1 . A survey of some previous empirical investigations into the determinants of economic growth
Dependent variable Independent variables ( Adjusted ) R 2 N
Kormendi and Meguire ( 1985 ) Output growth
Levine and Zervos ( 1998 ) Output growth
Hall and Jones ( 1999 ) log ( output per worker )
Burnside and Dollar ( 2000 ) Output growth
Folster and Henrekson ( 2001 )
Dreher ( 2006 )
Growth of GDP per capita
Growth of GDP per capita
Initial per capita income , Population growth , Standard |
|
|
deviation of growth , Money supply , Standard deviation of |
|
|
money supply , government spending , Exports , Inflation |
0.63 |
43 |
Bank credit , Share turnover , Initial output , Enrollment , |
|
|
Revolutions and Coups , Government , Inflation , Black |
|
|
Market |
0.5 |
42 |
Distance from equator , trade share , English-language , |
|
|
European-language |
0.6 |
127 |
Initial GDP , Ethnic fractionation , Assassinations , |
|
|
Institutional quality , M2 / GDP , Budget surplus , Inflation , |
|
|
Openness , Aid , Regional dummies |
0.35 |
275 |
Taxes , Initial GDP / capita , Investment , Schooling , growth |
|
|
of labor force , Unemployment |
0.46 |
115 |
Globalization , Log ( per capita GDP ), Secondary school enrolment , life expectancy , fertility rate , investment , Govt consumption , Rule-of-law index , Inflation , Terms of trade , political rights , civil liberties , democracy |
0.43 |
426 |
• Relatively efficient capital markets
• Low crime ( so employees won ’ t be robbed on the way to work )
• Macroeconomic stability ( e . g . no hyperinflation )
• Efficient fluid labor market that includes skilled individuals ( which in turn requires an adequate education system )
• Property rights that are respected
• Good police and judicial systems
• Consumer confidence in the ability to obtain after-sales service after the purchase of faulty products
... and so on . Failure in any one of these dimensions could seriously hold up the venture . A low value for any one of these reduces the overall desirability of setting up a business . In order to be successful , the entrepreneur requires broad-based support on a large number of dimensions . In this perspective , the success of an economy cannot be attributed to just one actor ( the entrepreneur ), but it is very much a collective effort . Therefore , it is the strength of societies , rather than the strength of any one individual , that determines the level of economic development .
3 . Institutions as Multifaceted and Having Multiplicative Interactions
3.1 Simple Theoretical Model
We now formalize the main ideas of the paper .
Proposition 1 : Institutions are multidimensional . We denote a particular institution by x i
, where i ∈ 1 ∙∙∙ N . The variables x i are independent and identically distributed ( i . i . d .). We posit that N is large .
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