INSTITUTIONS AS THE FUNDAMENTAL CAUSE OF LONG-RUN GROWTH

This paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on wo quasi-natural experiments" in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally a conflict over these social choices, ultimately resolved in favor of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de jure political power, while groups with greater economic might typically possess greater de facto political power. We therefore view the appropriate theoretical framework as a dynamic one with political institutions and the distribution of resources as the state variables. These variables themselves change over time because prevailing economic institutions affect the distribution of resources, and because groups with de facto political power today strive to change political institutions in order to increase their de jure political power in the future. Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power holders. We illustrate the assumptions, the workings and the implications of this framework using a number of historical examples."Development

Custos de transação, instituições e a cultura da informalidade no Brasil

Bibliografia: p. 142-144O objetivo deste artigo é realizar uma discussão a respeito da persistência da cultura da informalidade no ambiente de negócios brasileiro, abordando o papel das instituições públicas no desenvolvimento econômico. Com base em um conceito de firma como um meio de organização e transformação das relações de mercado, desenvolve-se o argumento de que o aprimoramento das instituições públicas é fundamental para o crescimento econômico no longo prazo, na medida em que pode promover o crescimento da economia formal, reduzindo seus custos de transação.This article discusses the informality culture persistence in Brazilian businesses, regarding the role of public institutions in economic development. From the concept of the firm as an organization and transformation mean for market relations, the work argues that public institutions improvement is a fundamental cause for long-run growth, as far as institutions are able to stimulate formality, reducing transaction costs

Is government ownership of banks really harmful to growth?

We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more 'fundamental' determinants of economic growth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks

Myths and Realities of Long-run Development: A Look at Deeper Determinants

It has long been realised that factor accumulation and technological development are only proximate causes of economic development, and the focus has now shifted to investigating the deeper determinants of economic growth. Two such forces are highlighted in the literature: institutions and geography. However, it remains controversial as to which of these two is the more important. The institutions school assigns primal importance to institutions, whereas the geography school considers geographical factors as the primary determinant of the economic performance of countries. This paper reviews the debate surrounding these deeper determinants of economic performance. It reviews the work of these two schools of thought and their interpretation of the long-run development. The paper then examines the evidence provided by the respective schools in favour of their hypotheses. It concludes in favour of the Institutions hypothesis as the Geography school does not provide a consistent story of long-run development.Institutions, Geography, Long-run Development, Deeper Determinants of Growth

Institutions, Democracy and Growth:A Long Run Analysis

In this paper, based on our past research, we have set ourselves the goal of testing the following hypothesis: the fundamental precondition for the due protection of private property is personal immunity in the broad sense, i.e. guarantees of rights such as the protection of life, personal freedoms and the inviolability of private property, including the requisite institutions for the enforcement of the same, often conceived of in political terms.Property Rights, Democracy

Is Government Ownership of Banks Really Harmful to Growth?

We show that previous results suggesting that government ownership of banks has a negative effect on economic growth are not robust to adding more 'fundamental' determinants of economic grwoth, such as institutions. We also present regression results from a more recent period (1995-2007) which suggest that, if anything, government ownership of banks has been associated with higher long run growth rates, even after controlling for institutions and other variables suggested by the growth literature. Drawing on the current global financial crisis, we provide a conceptual framework which explains why under certain circumstances government owned banks could have a greater effect on economic growth than privately-owned banks.

Institutions, Innovation and Economic Growth

This article contributes to the growth literature by developing a formal growth model that provides the basis for studying institutions and technological innovation and examining how human capital and institutional constraints affect the transitional and steady state growth rates of output. The model developed in this article shows that the reason that growth models a-la-Romer (1990) generate endogenous growth is the use of a set of restrictive and unrealistic assumptions regarding the role of institutions in the economy. The baseline model developed in this article shows that the long-run growth of the economy is intrinsically linked to institutions and suggests that an economy with institutions that retard or prevent the utilization of newly invented inputs will experience low levels and low growth rates of output. The model also predicts that countries with institutional barriers that prevent or restrict the adoption of newly invented technologies will allocate a relative small share of human capital in the R&D sector. Moreover, both the baseline and the extended version of the model suggest that sustainable growth in human capital, not an increase in the stock of human capital, generates a growth effect.Institutions; innovation; human capital; economic growth

The Causal Relationship between Institutions and Economic Growth: An Empirical Investigation for Pakistan Economy

This paper investigates relationship between institutional quality and economic performance in Pakistan using the Johansen-Juselius cointegration technique and the Granger causality test. The study results indicate that Institutions and growth are cointegrated and thus exhibit a reliable long run relationship. The Granger causality test findings indicate that the causality between Institutions and growth is uni-directional. However, there is no short run causality from Institutions to growth and vice versa. Therefore, as a policy implication that institutional quality may cause to the sustainable increase in country’s income in the long run, and success of any policy could be influenced by the soundness of institutions.institutions; social capital; growth; cointegration; index;granger; error correction; Johansen; pakistan