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Saturday, April 06, 2013

Institutions and growth

It's become something of a standard argument (maybe, even, a cliche) that economic gorwth depends on a country having an appropriate set of "good" institutions.  For example, Greg Mankiw's best-selling intro econ text,  has a box of pp. 550-551, in which he turns the stage over to Daron Acemoglu, who writes:

...the key to ensuring thost incentives is sound institutions--the rule of law and security and a governing system that offers opportunites to achieve and innovate.  That's what determines the haves from the have-nots--not geography or weather or technology or ethincity...
But maybe it's not that simple.  In a recent paper, ("Developing the Guts of a GUT (Grand Unified Theory): Elite Commitment and Inclusive Growth"), Lant Pritchett and Eric Kerker argue that "...there is no link at all between the improvement in ‘quality of government’ and economic growth 1984 to 2004. A country like Uganda has massive improvement but exactly average growth, China has massive growth and no improvement at all, Malaysia saw QOG worsen but growth well above average, etc..."

Tyler Cowen (on whose blog I found this paper,) adds this comment: "Was it Jeff Sachs who put it this way?: Go back to 1960 and try to measure the quality of institutions any way you wish, knowing of course in advance which countries end up doing well. Can you find any measure at all which predicts subsequent growth? This is a tough problem for we economists."

Just another grain of salt...


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