The geographic dimensions of institutions
Samyukta Bhupatiraju
#2014-086
In this paper we examine the role of institutions relative to economic
performance, absolute geography and financial performance of a country.
In order to do this, we use the spatial principal component analysis and
a spatial canonical correlation analysis to obtain multi-dimensional
measure of institutions, economic performance, absolute geography and
financial performance of countries. Our analysis shows that the first
canonical functions in all the cases give us results that conform to
current literature. That is, we find that a higher level of development
is correlated to a higher level of institutional quality, deeper
financial structure as well as "good" geography of the Jeffery Sachs
variety. From the second canonical functions we find that economic
growth is correlated to market steering. We further find that geographic
conditions need not define the institutional set up of countries. A
similar institutional set up need not result in a similar financial
structure in countries. We show that there is a necessity to take
spatial interactions with neighbouring countries into account while
analysing the relationships between institutions, geography, economic
and financial performance of a country. We find that space indeed has a
strong influence on the prevailing institutional and economic conditions
of countries. While the impact of space on geography is very obvious, we
find that it has no bearing on the financial performance of countries.
Keywords: economic performance; institutional quality; financial
performance; geography; spatial principal components analysis; spatial
canonical correlation analysis: spatial concentration
JEL Classification: O10, O16, O17, O43, R12, R15