Institutions and economic development: new measurements and evidence

We propose a new set of indices to capture the multidimensionality of a country’s institutional setting. Our indices are obtained by employing a dimension reduction approach on the institutional variables provided by the Fraser Institute ( 2018 ). We estimate the impact that institutions have on the level and the growth rate of per capita GDP, using a large sample of countries over the period 1980–2015. To identify the causal effect of our institutional indices on a country’s GDP we employ the Generalized Propensity Score method. Institutions matter especially in low- and middle-income countries, and not all institutions are alike for economic development. We also document non-linearities in the causal effects that different institutions have on growth and the presence of threshold effects.