Institutions and development in the nineteenth century: A latent variable regression model

Abstract

This paper is an attempt to quantify the impact of institutions upon the process of economic development. The paper analyses cross-country patterns of economic development using data for 23 countries over the period 1850–1914 and subperiods thereof. The emphasis is on detecting differences of development patterns amongst groups of economies. A recursive structural model is specified linking blocks of variables which cover the impact of political structures (including foreign dependence and the socioeconomic characteristics of political leadership) and economic institutions (the nature of land tenure, the level of development of commodity and factor markets) upon economic growth and the spread of benefits from such growth. Just as in a previous study the present study also attributes major importance to institutional factors in determining the pattern of economic development. In cross-period analysis they find that the impact of particular institutions changed in the course of time, e.g. the impact of government participation was strongly positive in the initiation of structural and institutional change and export growth in the period 1850–1870, but the positive effects of government on export growth became negligible by 1870.