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Institutions vs. ‘first-nature’ geography: what drives economic growth in Europe's regions?

Ketterer, Tobias D. and Rodríguez-Pose, Andrés (2016) Institutions vs. ‘first-nature’ geography: what drives economic growth in Europe's regions? Papers in Regional Science. ISSN 1056-8190

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Identification Number: 10.1111/pirs.12237

Abstract

The debate on whether institutions or geography prevail in driving economic growth has been rife (e.g., Sachs 2003 vs. Rodrik et al. 2004). Most of the empirical analyses delving into this debate have focused on world countries, whose geographical and institutional conditions differ widely. Subnational analyses considering groups of countries with, in principle, more similar institutional and geographical conditions have been limited and tended to highlight that geography is more important than institutions at subnational level. This paper aims to address whether this is the case by investigating how differences in institutional and ‘first-nature’ geographical conditions have affected economic growth in Europe's regions in the period 1995–2009. In the analysis we use a newly developed dataset including regional quality of government indicators and geographical charactersitics and employ two-stage least squares (2SLS) and instrumental variables-generalized method of moments (IV-GMM) estimation techniques with a number of regional historical variables as instruments. Our results indicate that at a regional level in Europe institutions rule. Regional institutional conditions – and, particularly, government effectiveness and the fight against corruption – play an important role in shaping regional economic growth prospects. This does not imply, however, that geography is irrelevant. There is evidence of geographical factors affecting regional growth, although their impact is dwarfed by the overriding influence of institutions.

Item Type: Article
Official URL: http://onlinelibrary.wiley.com/journal/10.1111/(IS...
Additional Information: © 2016 The Author(s). Papers in Regional Science © 2016 RSAI
Subjects: G Geography. Anthropology. Recreation > G Geography (General)
H Social Sciences > HC Economic History and Conditions
J Political Science > JN Political institutions (Europe)
Sets: Departments > Geography and Environment
Date Deposited: 30 Aug 2016 14:41
Last Modified: 25 Sep 2017 11:54
URI: http://eprints.lse.ac.uk/id/eprint/67544

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