“Does Investment Spur Growth Everywhere? Not Where Institutions Are Weak”

by Thibaut Dort, Pierre-Guillaume Méon and Khalid Sekkat

Abstract

We investigate the impact of investment on growth in a sample of developed and developing countries, conditioning the marginal effect of investment on institutional quality. The panel structure of our dataset allows controlling for unobserved heterogeneity and dealing with the risk of endogeneity bias. In line with our expectations, we find that investment increases growth more in countries with high institutional quality than in countries with defective institutions. The results are essentially driven by government instability, corruption, and the rule of law.

Keywords: growth, investment, institutions.

JEL Classi…cations: O11, E02, P48

The full article is available as a CEB Working Paper N° 13/030.  Please also note that we have added it to the topic ‘Geography, Institutions, and Economic Growth‘ on the InsTED site.