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Applying panel vector autoregression to institutions, human capital, and output

  • Ryan H. Murphy
  • Colin O’Reilly
Article

Abstract

We bridge two areas of study by applying panel vector autoregression (PVAR) to human capital, political institutions, economic institutions, and economic output per capita. Institutions and human capital have competed within the scholarly literature as hypotheses explaining the origins of economic growth. Elsewhere, our measure of economic institutions, the Economic Freedom of the World index, has recently been explored extensively as a dependent variable, whereas previously it had been used as an explanatory variable. We wish to measure the interrelationships between political and economic institutions, as well as their interrelationships with economic output and human capital, in contrast to the literature which emphasizes the importance of political institutions alone. We explore these interrelationships in a PVAR model, finding that, descriptively at least, higher-quality economic institutions are associated with more output. We also find weak evidence that higher-quality political institutions are associated with less output and less education. We also find a robust positive effect of education on the quality of economic institutions. In performing this analysis, we contribute to the literature on the institutions and human capital debate, as well as to the literature on the causes of free economic institutions.

Keywords

Economic growth Political institutions Economic institutions Human capital 

JEL Classification

O43 P51 

Notes

Acknowledgements

The authors would like to thank Vasudeva Murthy for his helpful comments and suggestions.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  1. 1.The O’Neil Center for Global Markets and Freedom, SMU Cox School of BusinessSouthern Methodist UniversityDallasUSA
  2. 2.Heider College of BusinessCreighton UniversityOmahaUSA

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