The impact of institutions, culture, and religion on per capita income

Despite many approaches of neoclassical and endogenous growth theory, economists still face problems in explaining the reasons for income differences between countries. Institutional economics and the deep determinants of growth literature try to depart from pure economic facts to examine economic development. Therefore, this article analyzes the impact of institutions, geography, and integration on per capita income. Concerning theoretical reasoning, emphasis is on the emergence of institutions and their effect on economic growth. However, institutions can appear in different shapes since political, legal, and economic restrictions are not the only constraints on human behaviour. Norms and values also limit possible actions. Therefore, a differentiation between formal and informal institutions is made. Informal institutions are defined as beliefs, attitudes, moral, conventions, and codes of conduct. Property rights are assumed to be the basic formal institutional feature for economic success. Despite their direct impact on growth through individual utility maximization, property rights also make a statement concerning the political and legal environment of a country. Regarding the regression analysis, different religious affiliations are used as instrumental variables for formal and informal institutions. The regression results affirm a crucial role of informal and formal institutions concerning economic development. However, a high proportion of Protestant citizens encourage informal institutions that support economic growth, while a high Muslim proportion of the population is negatively correlated with growth-supporting formal institutions.