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 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.

Bibliographic Details

Main Authors:	Adams-Kane, Jonathon, Lim, Jamus Jerome
Format:	Policy Research Working Paper biblioteca
Language:	English
Published:	World Bank, Washington, DC 2014-02-01
Subjects:	ACCOUNTABILITY, ACCOUNTING, AUTHORITY, BENCHMARK, BINDING CONSTRAINT, BOND, BUDGET MANAGEMENT, BUREAUCRACY, CAPITAL ACCUMULATION, CAPITAL INVESTMENTS, CAPITAL SHARE, CAPITAL STOCK, CAUSAL IMPACT, CHECKS, COMPARATIVE ECONOMICS, COMPETITIVENESS, COMPOSITE INDICATOR, CONSUMPTION EXPENDITURE, CORRUPTION, COUNTRY CHARACTERISTICS, COUNTRY DATA, COUNTRY ESTIMATES, COUNTRY FIXED EFFECTS, CRITICAL IMPORTANCE, DATA AVAILABILITY, DATA COLLECTION, DATA QUALITY, DEBT, DEMOCRACY, DEMOCRATIC DEVELOPMENT, DEVELOPING COUNTRIES, DEVELOPING COUNTRY, DEVELOPING ECONOMIES, DEVELOPMENT ECONOMICS, DEVELOPMENT POLICY, DIMINISHING RETURNS, DISCOUNT RATE, ECONOMETRIC ANALYSIS, ECONOMETRICS, ECONOMIC DEVELOPMENT, ECONOMIC GROWTH, ECONOMIC OUTCOMES, ECONOMIC PERFORMANCE, ECONOMICS, ECONOMICS OF EDUCATION, EDUCATIONAL ATTAINMENT, EDUCATIONAL INSTITUTIONS, EFFECT OF GOVERNANCE, ENDOGENOUS VARIABLES, EXOGENOUS RATES, EXOGENOUS VARIABLES, EXPENDITURE, EXTERNALITIES, FIGHTING CORRUPTION, FINANCIAL MANAGEMENT, FISCAL POLICY, FIXED CAPITAL, FUTURE RESEARCH, GDP, GDP PER CAPITA, GOOD GOVERNANCE, GOVERNANCE DATA, GOVERNANCE DIMENSION, GOVERNANCE FAILURES, GOVERNANCE INDICATOR, GOVERNANCE MEASURE, GOVERNANCE MEASURES, GOVERNANCE QUALITY, GOVERNMENT CONSUMPTION, GOVERNMENT EFFECTIVENESS, GOVERNMENT EXPENDITURES, GOVERNMENT SPENDING, GROSS DEBT, GROSS FIXED CAPITAL FORMATION, GROWTH RATE, GROWTH RATES, HUMAN CAPITAL, HUMAN CAPITAL INVESTMENTS, HUMAN CAPITAL STOCK, HUMAN DEVELOPMENT, HUMAN DEVELOPMENT NETWORK, INCOME GROUPS, INCOME GROWTH, INCOME LEVEL, INCOME LEVELS, INFLATION, INFORMAL PAYMENTS, INSTITUTIONAL CHANGE, INSTITUTIONAL ENVIRONMENT, INSTITUTIONAL ENVIRONMENTS, INSTITUTIONAL FRAMEWORK, INSTITUTIONAL MECHANISM, INSTITUTIONAL QUALITY, INSTITUTIONAL REFORM, INSTITUTIONAL STRUCTURE, INSTRUMENT, INTERNATIONAL BANK, INTERNATIONAL DEVELOPMENT, INVENTORIES, INVESTING, INVESTMENT MANAGEMENT, LABOR MARKET, LABOR-FORCE, LESS DEVELOPED COUNTRIES, MACROECONOMIC DATA, MACROECONOMIC LEVEL, MACROECONOMIC MANAGEMENT, MACROECONOMIC POLICY, MARGINAL PRODUCTIVITY, MEASUREMENT ERROR, MISMANAGEMENT, MONETARY ECONOMICS, NATIONAL INCOME, NATIONS, NET EXPORTS, NPL, OUTPUT, PER CAPITA INCOME, PER CAPITA INCOMES, POLICY IMPLICATIONS, POLITICAL ECONOMY, POLITICAL PARTICIPATION, POLITICAL REGIME, POLITICAL STABILITY, POSITIVE EFFECTS, PRIMARY SCHOOL, PRIVATE ENTITIES, PRODUCTION FUNCTION, PRODUCTION FUNCTIONS, PROPERTY RIGHTS, PUBLIC EXPENDITURE, PUBLIC FINANCE, PUBLIC FINANCES, PUBLIC INVESTMENT, PUBLIC SECTOR, PUBLIC SPENDING, RATES OF RETURN, REGIONAL DUMMIES, REGULATORY QUALITY, REVERSE CAUSALITY, RULE OF LAW, SERVICE DELIVERY, SOCIAL CAPITAL, SOCIAL SECURITY, STATE INCOME, STOCK DATA, STRUCTURAL CHANGE, TECHNOLOGICAL CHANGE, TECHNOLOGY TRANSFER, TRANSPARENCY, WAGE RATES, WEALTH, WORLD DEVELOPMENT INDICATORS, WORLDWIDE GOVERNANCE INDICATORS, YOUTH,
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
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