Institutions and income level: An empirical approach to municipal districts

Municipalities in the state of Paraná show a great disparity in income levels. The difference between the municipalities with the highest and lowest GDP per worker at the beginning of this millennium was greater than 700%, according to IBGE (2000) data. A possible explanation for these disparities is provided by institutional theory. Many empirical studies in this field have found a high correlation between institutional quality and economic development. The theory suggests that institutions affect the income level by means of the distribution of political power, the generation of economic opportunities, stimulus for innovation and accumulation of human capital, in addition to other ways. With this scenario in mind, the objective of this study is to measure the quality of institutions in the municipalities of Paraná State and evaluate the effect they have on their respective income levels.