Kiel Institute for World Economics Duesternbrooker Weg 120 24105 Kiel (Germany)

A majority of recent papers that focuses on the impact of the institutional framework on income, and in particular on the role of property rights and the rule of law, denies any significant direct effect of other factors than the quality of institutions (e.g. [...] After controlling for endogeneity, the estimated coefficients of the measure of institutional quality and of the SSA dummy variable turn out to be statistically significant and economically important, independent of the specific measure of institutional quality. [...] An upward bias in the estimate of the coefficient of the institutional variable could be the result of an omitted variable that affects both the institutional variable and the dependent variable lnGDPW in the same direction. [...] This correlation is likely to create problems of too little discriminatory power of the instruments, which in turn may result in the statistical insignificance of the coefficient of the measure of institutional quality. [...] The estimation of conditional coefficients as presented in the following section eliminates the problem of cor- 15 The correlation coefficient between lnmort and maleco is 0.59 in the small sample and 0.71 in the large sample.