Скачать или смотреть Institutional causes, macroeconomic symptoms: volatility, crises and growth

Ever wondered how a country's institutions shape its economic destiny? Dive into this eye-opening analysis that explores how weak institutions can fuel economic instability, crises, and stunt growth, especially in developing nations. Discover why macroeconomic policies alone can't save the day!

FAQ:
1. What is the main argument of this research?
This research argues that a country's long-run institutional quality is crucial for its macroeconomic performance. Countries with strong institutions, characterized by constraints on the executive branch and protection against expropriation, experience lower volatility, fewer crises, and better growth. Conversely, weak institutions lead to more volatility and crises, even when controlling for standard macroeconomic variables like inflation and government size.

2. What are the potential mechanisms through which institutions affect macroeconomic outcomes?
The research suggests that institutional quality affects volatility and crises through various channels, including:
Investment decisions: Strong institutions promote investment by securing property rights and a predictable policy environment.
Political and social stability: Weak institutions may lead to political instability and social conflict, disrupting economic activity.
Policy choices: Weak institutions can incentivize unsustainable policies, potentially leading to economic crises.

3. Why are traditional macroeconomic variables not the main drivers of volatility and crises?
The research finds that while traditional macroeconomic variables like inflation and government size might play a role, they are not the primary drivers of differences in volatility and crises across countries. The underlying institutional environment is the crucial factor.

4. How did the researchers measure institutional quality?
The researchers used settler mortality rates in former colonies as an instrument for current institutional quality. Higher settler mortality rates historically led to extractive institutions, resulting in weaker institutional quality today. Conversely, lower settler mortality rates allowed for more inclusive institutions, resulting in stronger institutional quality.

5. What is the significance of using settler mortality rates as an instrument?
Using settler mortality rates helps address potential endogeneity and omitted variable bias, disentangling the causal effect of institutions on macroeconomic performance from other factors.

6. What evidence supports the claim that institutional quality is a significant determinant of macroeconomic volatility?
Empirical analysis demonstrates a robust negative relationship between institutional quality and macroeconomic volatility, even after controlling for various macroeconomic policy variables. Improving institutional quality can significantly reduce volatility.

7. Does the relationship between institutions and volatility hold across different time periods?
The relationship appears stronger in some periods than others, but overall, institutions consistently play a significant role in shaping macroeconomic volatility over the long run.

8. What are the implications of this research for policymakers?
This research highlights the importance of building and strengthening institutions for achieving macroeconomic stability and sustained growth. Policy efforts focused solely on managing traditional macroeconomic variables may be insufficient without addressing institutional weaknesses.

📖 Resources:
Read the paper: [https://www.nber.org/system/files/wor...]

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