The Long Term Determinants of Economic Growth. Critical Assessment and Empirical Evidence of Competing Schools of Thought

This project takes on a long-standing debate about the fundamental long-run determinants of economic development and growth, arguably the most important question of economics - why are some nations rich, while others are poor? What are the determinants of economic success of a nation? Why do nations fail and others thrive? Since the seminal paper by Acemoglu, Johnson and Robinson (AJR) in the American Economic Review 2001, there has been a heated debate on the fundamental causes of long-run economic growth. Institutionalists like North, Rodrick and AJR propose that good institutions are the fundamental drivers of long-run growth and that better human capital accumulation is only a reflection of better institutions. Glaeser, La Portal Lopez-de Silvanes and Shleifer (GLLS) posit that higher human capital endowment in a society leads to more political clout of the populace in striving for property rights protection and better institutions. According to their view, good institutions are a consequence of a good human capital endowment. Lastly, Sachs and coauthors maintain that geography, especially climate and disease environment, are important drivers of economic growth. These different views are based on empirical findings that are contradictory and have been derived using up-to-date empirical methods. After more than 10 years and many top-rated empirical articles matters have not become clearer than before. Confusion and disagreement have just been taken to another level. The question arises whether any of these three theories emerges as the most convincing, most robust and others can be discarded if we put all theories to rigorous empirical testing in an unprejudiced, impartial way. In particular, results might depend on the specific time frame, the variables used to capture the concept of institutions, human capital and geography, or the instruments used to replace endogenous regressors by exogenous variables. Moreover, the exclusion restriction may not hold for the instruments chosen. This project looks at the empirical evidence and at all these potential Achilles heels to investigate in an unprejudiced way whether it is at all possible to establish empirically superiority of one theory over the others.

contact person: Prof. Dr. Günther Schulze
Phone: 0761 203-2342
Email: guenther.schulze@vwl.uni-freiburg.de

Start of project: 01.02.2014
End of project: 31.10.2015

Albert-Ludwigs-University Freiburg
Schulze G, Antipova, Maryana

Actual Research Report

• Mariana Antipova
• Günther Schulze

long-term determinants of economic development, economic growth, institutions