1. Institutional Clusters
Jon Jellema and Gérard Roland
UC Berkeley

2. Introduction
Growing consensus among economists on importance of Institutions following work of North and others
Institutions matter for growth (Acemoglu et al., 2002)
However,
aggregate measure of institutions used very often. Does not tell which institutions matter.
Aggregate measures usually based on subjective evaluation of institutions which contains noise (see e.g. Glaeser et al., 2004)

3. Which institutions matter more?
This paper: more comprehensive attempt at answering that question by using factor analysis (principal component) on existing objective institutional measures.
Justification:
Many correlated measures of institutions
Noisy measures.
Principal component analysis allows to come up with a small number of orthogonal clusters.
Difficulty: interpretation not always easy.

4. We gathered all existing cross-country institutional databases to see if we could identify robust clusters of institutions that matter for growth.
Main trade-off: inclusion of more variables reduces the set of countries.
Robustness is important concern. Clusters change with variable changes. Necessary to try many combinations of variables to get a sense of robust results.

5. Two approaches:
principal component for political, judicial and cultural variables (advantage: flexibility in choice of variables; cost: possible correlation – we find correlation between political and cultural variables)
principal component clusters of objective measures of institutions.

6. Main results:
Institutional clusters obtained are quite intuitive. Broad clusters rather than specific institutions.
Few variables are robustly significant.
Legal institutional variables rarely significant, political and cultural more often.
Robust results: political institutions of limited executive and checks and balances; also, anti-authoritarian, democratic, participatory culture.
IV estimation (with different instruments) tends to strengthen these results.

17. Conclusion
Robust result: limited executive with checks and balances, anti-authoritarian culture, secularism associated with long run growth and has a causal effect.
Broad set of institutions of separation of powers matter rather than a few single institutions.
Other institutions, including legal origins, do not appear to have an effect.
Political institutions and culture intertwined: suggests that political reforms not supported by adequate cultural change may not work well.