Measuring mancur olson: What is the influence of culture, institutions and policies on economic development?

Abstract

Mancur Olson wrote his influential study Big Bills Left on the Sidewalk: Why Some Countries are Rich, and Others Poor in 1996. In his paper, Olson claimed that the differences in economic development between countries are caused by only two factors: institutions and policies on the one hand and culture on the other. We attempt to test his conjecture using econometric modelling, combining and comparing it with a broadly defined orthodox production function in an indirect neoclassical notation (Solow-Minhas-Arrow-Chenery’s SMAC framework). The “pseudo-production function” obtained is econometrically sound and of explanatory power similar to models including economic variables, although we find strong evidence of interdependence between capital-labour share and institutions and policies and culture. We consider the test, performed on panel data from 154 countries over five-year averages from 1980–2014, to be robust and consistent with Olson’s ideas.