Table 1: Benchmark regressions of GDP per capita<sup>_†_</sup>

||(_B1_)|(_B2_)|(_B3_)|(_B4_)|(_B5_)|(_B6_)|
|---|---|---|---|---|---|---|
|||_S_|_econd stage _|_income equati_|_on_||
|Investment|0.432|0.836|1.097|-0.002|0.689|0.255|
|share|(0.34)|(0.47)<sup>_∗_</sup>|(0.48)<sup>_∗∗_</sup>|(0.42)|(0.27)<sup>_∗∗_</sup>|(0.32)|
|Net rate of|-0.900|0.815|0.801|1.889|0.744|1.695|
|depreciation|(0.63)|(0.99)|(1.02)|(0.74)<sup>_∗∗_</sup>|(0.98)|(0.69)<sup>_∗∗_</sup>|
|Human|1.840|3.125|3.142|3.329|3.024|3.250|
|capital|(0.23)<sup>_∗∗∗_</sup>|(0.48)<sup>_∗∗∗_</sup>|(0.44)<sup>_∗∗∗_</sup>|(0.39)<sup>_∗∗∗_</sup>|(0.41)<sup>_∗∗∗_</sup>|(0.32)<sup>_∗∗∗_</sup>|
|Constant|4.111<br>(1.58)<sup>_∗∗_</sup>|7.231<br>(2.35)<sup>_∗∗∗_</sup>|7.547<br>(2.56)<sup>_∗∗∗_</sup>|8.616<br>(1.84)<sup>_∗∗∗_</sup>|6.954<br>(2.33)<sup>_∗∗∗_</sup>|8.545<br>(1.79)<sup>_∗∗∗_</sup>|
|||_Fir_|_st stage hum_|_an capital equ_|_ation_||
|Family||-0.359|-0.753||-0.377||
|resources||(0.29)|(0.32)<sup>_∗∗_</sup>||(0.24)||
|School||-0.557|-0.626|-0.548|||
|resources||(0.20)<sup>_∗∗∗_</sup>|(0.22)<sup>_∗∗∗_</sup>|(0.17)<sup>_∗∗∗_</sup>|||
|Governance||0.136||0.137|0.251|0.277|
|||(0.06)<sup>_∗∗_</sup>||(0.05)<sup>_∗∗∗_</sup>|(0.05)<sup>_∗∗∗_</sup>|(0.04)<sup>_∗∗∗_</sup>|
|Broad|||0.116||||
|governance|||(0.07)<sup>_∗_</sup>||||
|Constant||1.657|1.749|1.760|-1.971|-1.694|
|||(1.39)|(1.50)|(1.03)<sup>_∗_</sup>|(0.96)<sup>_∗∗_</sup>|(0.71)<sup>_∗∗_</sup>|
|Adj _R_<sup>2</sup>|0.715|0.534|0.498|0.434|0.591|0.508|
|Anderson _LR_||31.544<sup>_∗∗∗_</sup>|29.135<sup>_∗∗∗_</sup>|40.837<sup>_∗∗∗_</sup>|27.779<sup>_∗∗∗_</sup>|39.049<sup>_∗∗∗_</sup>|
|Cragg-Donald _F_||12.315|11.252|24.789|15.615|45.639|
|Hansen _J_||1.717|1.535|0.255|0.032|-|
|_N_|103|64|60|83|78|103|

> _†_ Notes: All variables were transformed to logarithmic form. Huber-White (robust) standard errors reported in parentheses. First stage regressions included second stage controls as instruments, but are not reported. Hansen statistics for exactly identified models are replaced with a dash.<sup>_∗_</sup> indicates significance at 10 percent level,<sup>_∗∗_</sup> indicates significance at 5 percent level, and<sup>_∗∗∗_</sup> indicates significance at 1 percent level.

only marginally significant.<sup>13</sup> The Sargan-Hansen _J_ statistic ( _χ_<sup>2</sup> = 2 _._ 59 _, p_ = 0 _._ 27) indicates that the instruments are valid. The Anderson _LR_ statistic for underidentification is significant, and the Cragg-Donald _F_ for weak instruments is reasonably high ( _F_ = 12 _._ 32, Stock-Yogo _F_<sup>_crit_</sup> = 9 _._ 08 for 10% relative bias); both suggest that the instruments satisfy the relevance condition. Finally, the partial _R_<sup>2</sup> of the first-stage regression (not reported) is reasonably strong ( _R_<sup>2</sup> = 0 _._ 39); since there is only one endogenous regressor, this result further corroborates the test for weak identification ( _F_ = 9 _._ 78 _, p_ = 0 _._ 00).

The bottom half of column ( _B2_ ) reports the corresponding first stage results. While these estimates are of secondary interest, we note that the coefficients are consistent with the expected

> 13There is a valid concern that investment in physical capital may in fact be endogenous to government effectiveness, perhaps through the efficiency of government bureaucrats in processing investment-related procedures. While this appears to be important at the microeconomic level (Djankov, La Porta, L ́opez-de Silanes & Shleifer 2001), we are less convinced that this channel operates at the macroeconomic level, given that the correlation between the investment share and (lagged) government effectiveness is a low 0.2.

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