Across 127 countries, we find a powerful and close association between output per worker and measures of social infrastructure. Countries with long-standing policies favorable to productive activities—rather than diversion—produce much more output per worker. For example, our analysis suggests that the observed difference in social infrastructure between Niger and the United States is more than enough to explain the 35-fold difference in output per worker.

Our research is related to many earlier contributions. The large body of theoretical and qualitative analysis of property rights, corruption, and economic success will be discussed in Section 3. The recent empirical growth literature associated with Barro (1991) and others shares some common elements with our work, but our empirical framework differs fundamentally in its focus on levels instead of rates of growth. This focus is important for several reasons. website

First, levels capture the differences in long-run economic performance that are most directly relevant to welfare as measured by the consumption of goods and services.

Second, several recent contributions to the growth literature point toward a focus on levels instead of growth rates. Easterly, Kremer, Pritchett and Summers (1993) document the relatively low correlation of growth rates across decades, which suggests that differences in growth rates across countries may be mostly transitory. Jones (1995) questions the empirical relevance of endogenous growth and presents a model in which different government policies are associated with differences in levels, not growth rates. Finally, a number of recent models of idea flows across countries such as Parente and Prescott (1994), Barro and Sala-i-Martin (1995) and Eaton and Kortum (1995) imply that all countries will grow at a common rate in the long run: technology transfer keeps countries from drifting indefinitely far from each other. In these models, long-run differences in levels are the interesting differences to explain.