Model 3 adds to our regression a measure of the regulatory burden faced by the

Model 3 adds to our regression a measure of the

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Model 3 adds to our regression a measure of the regulatory burden faced by the different economies. The data comes from Kaufmann et. al. (1999). These authors aggregate different measures of governance originated from various sources of information in six robust indicators. “Voice and Accountability” (VA) measures the extent to which citizens of a country are able to participate in the selection of governments; “Political Instability and Violence” (PIV) measures the perceptions of the likelihood that the government will be destabilized; “Government Effectiveness” (GE) attempts to capture the quality of government by combining among other indicators the perceptions of the quality of public services, the independence and competence of the civil service; “Regulatory Burden” (RB) tries to capture the extent to which there are market unfriendly policies in a country as well as perceptions of the burdens imposed by
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29 excessive regulation; “Rule of Law” (RL) includes several indicators which measure the extent to which agents have confidence in and abide by the rules of society, and finally “Graft” (CP) measures perception of corruption. The choice of units of governance assures that the estimates of governance have a mean of zero, a standard deviation of one, and range from around –2.5 to around 2.5. Higher values correspond to better outcomes. One of the problems with these indicators are that they are for the years 1997-98. Some of them are less time invariant than others. For example, political systems have changed substantially in some countries in the last two decades which may affect substantially VA and PIV. RL and CP may also be influenced heavily by such changes. GE and RB are probably less sensible to changes in political systems. Since our dependent variable covers the period 1980-2000 these are the candidates to include in our regression. However these indicators are highly correlated with partial correlations ranging from 0.68 to 0.93 14 . GE and RB have a correlation of 0.85 in our subsample. Since we have an alternative measure for government effectiveness we include in our regression RB as an independent variable. As expected the coefficient for this variable is positive. A market friendly regulatory environment contributes positively to the growth of TFP. Governments play an important role. They not only allocate an important amount of the resources available in a economy but they also supervise the allocation of resources of the private sector. Therefore the government’s efficiency may affect the overall performance of an economy. For this reason we try to include a measure of government effectiveness in our analysis. Djankov et. al. (2000) trying to look at regulations to entry across countries built a database that includes the monetary cost of establishing a new firm and the number of days it takes to go over the different procedures to establish a firm. We aggregate their information in one variable by assuming that the value of the
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  • Summer '18
  • Sagar Arora
  • The Land, TFP

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