Institutions and Growth Dynamics in Latin America, 1801–2015

ABSTRACT Institutions are regularly blamed for poor economic performance, and Latin America is often used as the prime example of the potentially damaging effects of inadequate institutions on economic development. In this paper, annual data is constructed over the past two centuries for seven Latin American countries and for few advanced settler economies to (1) test for the influence of institutions on innovations, education and fixed investment using instruments for institutions; and (2) simulate the growth path of the Latin American countries using the institutional path of today's most successful settler economies. Findings show that institutions have been statistically highly significant determinants of economic development; however, they can only explain a small fraction of the widening income gap between the Latin American countries and the most successful settler economies over the past two centuries, suggesting that complementary explanations for economic development are called for.