Institutions, Geography, and Trade: A Panel Data Study
Southern Methodist University
Abstract: This paper employs a panel data approach to examine the impact of institutions, trade and geography on economic development. Our approach enables us to account for unobserved heterogeneity across countries, an issue that cannot be addressed in the cross-section framework. Moreover, employing the Hausman and Taylor approach allows us to obtain direct parameter estimates of the time invariant explanatory
variables like geography or some institutional measures. Our findings are that institutions, economic integration, and geography are valid determinants of economic development with regard to statistical significance and robustness but differ substantially in terms of their economic impact.
JEL Codes: O1, F1.
Keywords: development, institutions, openness, geography, panel data.