Institutions vs. 'first‐nature’ geography: What drives economic growth in Europe's regions?

Abstract

The debate on whether institutions or geography prevail in driving economic growth has been rife (e.g., Sachs 2003 vs. Rodrik et al. 2004). Most of the empirical analyses delving into this debate have focused on world countries, whose geographical and institutional conditions differ widely. Subnational analyses considering groups of countries with, in principle, more similar institutional and geographical conditions have been limited and tended to highlight that geography is more important than institutions at subnational level. This paper aims to address whether this is the case by investigating how differences in institutional and ‘first‐nature’ geographical conditions have affected economic growth in Europe's regions in the period 1995–2009. In the analysis we use a newly developed dataset including regional quality of government indicators and geographical characteristics and employ two‐stage least squares (2SLS) and instrumental variables‐generalized method of moments (IV‐GMM) estimation techniques with a number of regional historical variables as instruments. Our results indicate that at a regional level in Europe institutions rule. Regional institutional conditions – and, particularly, government effectiveness and the fight against corruption – play an important role in shaping regional economic growth prospects. This does not imply, however, that geography is irrelevant. There is evidence of geographical factors affecting regional growth, although their impact is dwarfed by the overriding influence of institutions.

Family Firms and Productivity: The Role of Institutional Quality

“…The coefficient shows that the quality of provincial government has a positive connection with firm's TFP. This result is in line with previous research that focused on the importance of institutions at the sub-national level (Tabellini, 2010;Ketterer & Rodríguez-Pose 2016;Rodríguez-Pose & Di Cataldo, 2014;Lasagni et al, 2015) (Note 13). Specifically for Italy, Lasagni et al (2015) focused on the Institutional Quality Index for Italian provinces and found that local institution quality does matter, as it proves to be one of the main drivers of firm productivity differentials.…”

The Impact of Institutional Quality and Efficient Cohesion Investments on Economic Growth Evidence from Italian Regions

“…Another part of literature has then explained the different roles of institutions on the investment returns by using several explanations. The performance of public institutions has been related to their geographical position [56]. Charron (2016) [57] has advanced the hypothesis that the heterogeneity in Structural Funds distribution to European Union regions depends on the interaction between regional formal institutions (the level of a regional autonomy), and informal institutions (its level of government quality).…”

Inheritance regimes: Medieval family structures and current institutional quality

“…Finally, following Ketterer and Rodríguez‐Pose (), we control for historical institutional legacies with two variables. The first measures whether a region was part of Charlemagne's empire at his death in the year 814.…”

“…Institutional quality is an expansive and nebulous concept and is often used interchangeably with terms such as quality of government and good governance (Charron, Dijkstra, & Lapuente, ; Ketterer & Rodríguez‐Pose, ). The terms usually also encompass the same subindicators, like property rights protection, rule of law, impartiality, absence of corruption, and government effectiveness.…”