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It is now well established that good institutions are crucial for a healthy economy. But you do not create good institutions with a magic wand, and they do not export well from one country to the next. So what makes good institutions? For one, former colonial masters matters, in particular former English colonies tend to have better institutions than other former colonies. At least for those countries, the origin of the legal system matters. For more developed economies, this is less obvious.
Niclas Berggren and Christian Bjørnskov find that religiosity, as measured by how important religion is in daily life, has an impact on institutional quality, especially in democracies. A negative impact. This seems to indicate that religion has some devious implications on the democratic process. How still needs to be established, though, but seeing how churches try to influence the political process, especially by getting poor people to vote against their interests, that does not surprise me too much.
Friday, March 23, 2012
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I sort of agree with the conclusion, but you guys are dealing with the mother of all endogeneity problems.
Europe is rich, and not that religious anymore. I find it hard to swallow that Europe's wealth is primarily due to a lack of church attendance. I think, rather, it's because Europe has been rich for a long time, and has high human capital, that it is rich and not religious. To convince, you'll need an amazing instrument for religiosity uncorrelated with other institutions, geography, GDP, or historical GDP, and you'll need regional clusters and continent dummies in every single one of your regressions. And you must, must, must control for latitude, as a bare minimum of geographic controls.
Another minor quibble: You wrote "Property rights and the rule of law have been shown to be of central importance for economic growth and development." While this seems obvious, and I would agree that property rights are important, it's worth pointing out that all of the studies you cite are flawed, and that this has not been definitively proven.
Instead, I think the history of development shows that a wide variety of institutional norms and legal arrangements can be consistent with wealth accumulation. Singapore, Japan, the US, and Denmark have quite different legal systems; yet all are rich. And the Soviet Union was much richer than market-based Sub-Saharan Africa.
Yours,
Alexander Hamilton
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