Abstract
The studies on human capital and technological progress have given incredible insights on how countries in the world differ from one another. Yet there are more than those two reasons to account for differences among countries. There is a third reason why a country would differ in terms of its economic development progress, namely institutional factors. Hence developing institutional indices would give a deeper explanation than a mere theory. On the other hand, we can corroborate the institutional index with the general theory that low-quality institutions will impact an economy negatively. This study seeks to broaden the understanding of causes of economic growth by incorporating institutional index into a semi-endogenous growth model and finds a relationship between that index with human capital and technological progress
Highlights
A question of interest for most of the macroeconomists is a question related to the cause of the difference in economic growth among countries in the world
Principal Component Analysis (PCA) result shows that there is a difference in index values between each quadrant
Quadrant I characterizes developed coun t ries in which institutional index is higher than any other quadrant
Summary
A question of interest for most of the macroeconomists is a question related to the cause of the difference in economic growth among countries in the world. According to Acemoglu & Robinson (2008), economic growth is related to people’s ability to accumulate human capital, physical capital, and technology. Acemoglu & Robinson (2008) further summarize the causes of the difference in economic growth to only 2, namely the proximate cause and fundamental cause. Proximate cause or the most active and dominant cause is human capital, physical capital, and technology. If we want to get a satisfactory answer from the question at the beginning of the paragraph, we should focus on the fundamental cause
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