INSTITUTIONS AND ECONOMIC DEVELOPMENT: DISENTANGLING THE ROLE OF CONTRACTING AND PROPERTY RIGHTS INSTITUTIONS

This paper aims at estimating the effect of different types of institutions on economic development. To tackle the endogeneity problem that is prevalent, an identification strategy exploiting the heteroskedasticity in the data is used. This also allows to analyze the reverse effect, running from economic development to institutions. In a sample of about 100 countries, an impact of property rights institutions but not contracting institutions on economic development is detected. Furthermore, the results suggest that a higher level of economic development improves contracting institutions, but not property rights institutions.