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The World Bank Economic Review Advance Access originally published online on June 8, 2006
The World Bank Economic Review 2006 20(3):309-339; doi:10.1093/wber/lhl001
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© The Author 2006. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oxfordjournals.org.

The Primacy of Institutions Reconsidered: Direct Income Effects of Malaria Prevalence

Kai Carstensen and Erich Gundlach

Kai Carstensen and Erich Gundlach are research fellows at the Kiel Institute for the World Economy; their email addresses are kai.carstensen{at}ifw-kiel.de and erich.gundlach{at}ifw-kiel.de.

Some recent empirical studies deny any direct effect of geography on development and conclude that institutions dominate all other potential determinants of development. An alternative view emphasizes that geographic factors such as disease ecology, as proxied by the prevalence of malaria, may have a large negative effect on income, independent of the quality of a country’s institutions. For instance, pandemic malaria may create a large economic burden beyond medical costs and forgone earnings by affecting household behavior and such macroeconomic variables as international investment and trade. After controlling for institutional quality, malaria prevalence is found to cause quantitatively important negative effects on income. The robustness of this finding is checked by employing alternative instrumental variables, tests of overidentification restrictions, and tests of the validity of the point estimates and standard errors in the presence of weak instruments. The baseline findings appear to be robust to using alternative specifications, instrumentations, and samples. The reported estimates suggest that good institutions may be necessary but not sufficient for generating a persistent process of successful economic development.


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