Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/214981 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7979
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper develops an approach that allows constructing regional proxies of government effectiveness at a highly dis-aggregated level. Our idea builds on the well documented interdependence between institutions and exports, which allows estimating the latent government effectiveness using methods of structural equation modeling. Unobserved institutional quality for each individual region is predicted using the regression outcomes. The impact of this novel identification strategy is tested using various panel applications. Results show that the magnitude of the effect of institutional quality can be biased in estimates that neglect regional differences in the effectiveness of institutions.
Subjects: 
trade
institutions
Chinese plant data
latent variable
structural equation modelling
JEL: 
D02
F10
P16
Document Type: 
Working Paper
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