Geography vs. Institutions at the Village Level

textabstractThere is a well-known debate about the respective roles of geography versus institutions in explaining the long-term development of countries. These debates have usually been based on cross-country regressions where questions about parameter heterogeneity, unobserved heterogeneity, and endogeneity cannot easily be controlled for. The innovation of Acemoglu, Johnson and Robinson (2001) was to address this last point by using settler mortality as an instrument for endogenous institutions and found that this supported their line of reasoning. We believe there is value-added to consider this debate at the micro level within a country as particularly questions of parameter heterogeneity and unobserved heterogeneity are likely to be smaller than between countries. Hence, we examine the determinants of economic development across villages on the Indonesian Island of Sulawesi and find technology adoption to play a crucial role. We show that geography-induced migration together with population size foster through their effect on institutions technology adoption.