Institutions and economic development: panel evidence

In this paper we search for empirical support for the thesis that institutions are a major driver of economic development. While most of the literature uses cross-country regressions (and thus limits itself to the between-country variation in the data), this paper uses pooled OLS, panel regressions with fixed effects, and country by country re- gressions taking advantage of both the within- and between-country variation in the data. Results can be summarized as follows: (a) When using both the within- and between-country variation we find a limited effect of institutions on economic development. The effect disappears once countries leave the lowest level of institutional quality. (b) When using only the within-country variation we find no effect of institutions on economic development.