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Factor endowments, the rule of law and structural inequality

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  • BENNETT, DANIEL L.
  • NIKOLAEV, BORIS
Abstract
This paper provides an empirical test of the Engerman–Sokoloff hypothesis that factor endowments influenced the development of the rule of law, which in turn has perpetuated income inequality. Using a measure of the suitability of land for growing wheat relative to sugarcane as an instrument for the rule of law, as measured by area 2 of the Economic Freedom of the World index, we estimate the potential causal impact of the rule of law on the long-run net income inequality. Conditioning on geography, ethnolinguistic fractionalization and legal tradition, the rule of law exerts a negative impact on inequality that is both economically and statistically significant. The results are robust to additional control variables, two alternative measures of the rule of law, an alternative instrumental variable and the exclusion of strategic country samples and outliers.

Suggested Citation

  • Bennett, Daniel L. & Nikolaev, Boris, 2016. "Factor endowments, the rule of law and structural inequality," Journal of Institutional Economics, Cambridge University Press, vol. 12(4), pages 773-795, December.
    • Handle: RePEc:cup:jinsec:v:12:y:2016:i:04:p:773-795_00
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    Cited by:

    1. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    2. Lidia Ceriani & Simona Scabrosetti & Francesco Scervini, 2022. "Inequality, Privatization and Democratic Institutions in Developing Countries," Hacienda Pública Española / Review of Public Economics, IEF, vol. 240(1), pages 95-124, March.
    3. Bennett, Daniel & Nikolaev, Boris & Aidt, Toke, 2016. "Institutions & Well-being," MPRA Paper 78436, University Library of Munich, Germany.
    4. Murphy, Ryan H., 2020. "The Quality of Legal Systems and Property Rights by State: A Ranking and Their Implications for Economic Freedom," Journal of Regional Analysis and Policy, Mid-Continent Regional Science Association, vol. 50(1), April.
    5. Vinicius V. Zanchi & Philipp Ehrl & Daniel T. G. N. Maciel, 2021. "Direct and Indirect Effects of Individualism and Institutions on Homicides," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 153(3), pages 1167-1195, February.
    6. Nikolaev, Boris & Boudreaux, Christopher & Salahodjaev, Rauf, 2017. "Are individualistic societies less equal? Evidence from the parasite stress theory of values," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 30-49.
    7. Gutmann, Jerg & Voigt, Stefan, 2018. "The rule of law: Measurement and deep roots," European Journal of Political Economy, Elsevier, vol. 54(C), pages 68-82.
    8. Boudreaux, Christopher J. & Nikolaev, Boris N. & Klein, Peter, 2019. "Socio-cognitive traits and entrepreneurship: The moderating role of economic institutions," Journal of Business Venturing, Elsevier, vol. 34(1), pages 178-196.
    9. Daniel L. Bennett & Boris Nikolaev, 2017. "On the ambiguous economic freedom–inequality relationship," Empirical Economics, Springer, vol. 53(2), pages 717-754, September.
    10. Cakal-Velagic Jurdal & Silajdzic Sabina, 2024. "The Effects of Macroeconomic and Financial Development on Income Inequality: Evidence from the Western Balkans," South East European Journal of Economics and Business, Sciendo, vol. 19(1), pages 50-62.
    11. Bennett, Daniel L. & Faria, Hugo J. & Gwartney, James D. & Morales, Daniel R., 2017. "Economic Institutions and Comparative Economic Development: A Post-Colonial Perspective," World Development, Elsevier, vol. 96(C), pages 503-519.
    12. Bennett, Daniel L. & Long, Jason T., 2019. "Is it the economic policy, stupid? Economic policy, political parties & the gubernatorial incumbent advantage," European Journal of Political Economy, Elsevier, vol. 58(C), pages 118-137.
    13. Christopher J. Boudreaux & Boris Nikolaev, 2019. "Capital is not enough: opportunity entrepreneurship and formal institutions," Small Business Economics, Springer, vol. 53(3), pages 709-738, October.
    14. Jha, Chandan Kumar & Panda, Bibhudutta & Sahu, Santosh Kumar, 2022. "Institutions and conflict," Economic Modelling, Elsevier, vol. 113(C).
    15. Johan Graafland, 2020. "When Does Economic Freedom Promote Well Being? On the Moderating Role of Long-Term Orientation," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 149(1), pages 127-153, May.
    16. Evžen Kočenda & Karen Poghosyan, 2018. "Export Sophistication: A Dynamic Panel Data Approach," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(12), pages 2799-2814, September.
    17. Daniel L. Bennet, 2016. "Subnational Economic Freedom and Performance in the United States and Canada," Cato Journal, Cato Journal, Cato Institute, vol. 36(1), pages 165-185, Winter.
    18. Evzen Kocenda & Karen Poghosyan, 2017. "Export sophistication: A dynamic panel data approach," Working Papers 980, Central Bank of the Republic of Armenia.
    19. Ryan H. Murphy, 2021. "Plausibly exogenous causes of economic freedom," Journal of Bioeconomics, Springer, vol. 23(1), pages 85-105, April.
    20. Daniel L. Bennett & Boris Nikolaev, 2021. "Individualism, pro-market institutions, and national innovation," Small Business Economics, Springer, vol. 57(4), pages 2085-2106, December.

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