Institutional Quality Mediates the Effect of Human Capital on Economic Performance
This paper considers the relationship between institutional quality, educational outcomes, and economic performance. More specifically, it seeks to establish the linkages by which government effectiveness affects per capita income, via its mediatin...
| Main Authors: | , |
|---|---|
| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2014
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2014/02/19154782/institutional-quality-mediates-effect-human-capital-economic-performance http://hdl.handle.net/10986/18361 |
| Summary: | This paper considers the relationship
between institutional quality, educational outcomes, and
economic performance. More specifically, it seeks to
establish the linkages by which government effectiveness
affects per capita income, via its mediating effect on human
capital formation. The empirical approach adopts a two-stage
strategy that estimates national-level educational
production functions that include government effectiveness
as a covariate, and then uses these estimates as instruments
for human capital in cross-country regressions of per capita
income. The results identify a significant and positive
effect of human capital on per capita income levels, and
partially resolves the inconsistency between macro- and
micro-level studies of the effect of human capital on
income. The results also remain robust to alternative
specifications, extension to a panel setting, subsamples of
the data, and fully endogenous institutions. |
|---|