Edgar Demetrio Tovar- García

Institutions and economic development: What we know about it?

Key words: institution, organization, economic development; economic growth

Edgar Demetrio Tovar-García

Высшая школа экономики, Москва

www.hse.ru


Institutions?

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1.Formal institutions

2.Informal institutions

3.Organizations

Программная инженерия




“Rules of the Game”

Institutions matter!



(Menard and Shirley, 2011: 33)

Высшая школа экономики, Москва,

Institutions and Economic Development

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Why are some countries rich and others poor?



𝐺𝐷𝑃= 𝛽0 + 𝛽1𝐶𝐴𝑃𝐼𝑇𝐴𝐿+ 𝛽2𝐿𝐴𝐵𝑂𝑅+𝑢



“North’s research changed many economists’ view of development from a process of growth spurred by new technology and capital accumulation to a dynamic process of institutional change” (Menard and Shirley, 2011: 3)



“Third World countries are poor because the institutional constraints define a set of payoffs to political/economic activity that do not encourage productive activity” (North, 1990: 110).



“In addition to capital accumulation, being developed economically entails having sophisticated economic organizations and credible enforcement of property rights and other contractual commitments. Similarly, being developed politically entails having rule of law, a constitutional setting in which all major players accept changes of power, effective legal recognition of organizational rights independently of who is in power, and state control of organized violence.” (North et al. 2009, p. 3)


Empirical Evidence

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Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?,"The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.

Output per worker varies enormously across countries, why?

• Physical capital and educational attainment can only partially explain the variation in output per worker

• Productivity, and therefore output per worker are driven by differences in institutions and government policies

http://ideas.repec.org/a/tpr/qjecon/v114y1999i1p83-116.html



http://ideas.repec.org/s/tpr/qjecon.html

http://ideas.repec.org/s/tpr/qjecon.html



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2) Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.

Which are the effects of institutions on economic performance? Effects of institutions on income per capita?

Europeans adopted very different colonization policies in different colonies, with different associated institutions. In places where Europeans faced high mortality rates, they could not settle and were more likely to set up extractive institutions. These institutions persisted to the present.

http://ideas.repec.org/a/aea/aecrev/v91y2001i5p1369-1401.html

http://ideas.repec.org/a/aea/aecrev/v91y2001i5p1369-1401.html

http://ideas.repec.org/s/aea/aecrev.html



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Political markets

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“Political markets are more prone to inefficiency than economic markets. The cost of measuring and enforcing agreements is higher in political markets, North argued, because what is being exchanged – promises for votes – is inherently difficult to measure. Voters may find it hard to judge if the actions of their representatives produce outcomes that favor voter interests; voters may not even know what their interests are under certain policy choices” (Menard and Shirley, 2011: 7).


Conclusion

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Institutions matter!

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Edgar Demetrio Tovar- García