POLITICAL ECONOMY Economic Development - Institutions (2)

FOR DEVELOPMENT
COMPARING CHARACTERISTICS AMONG DEVELOPING
COUNTRIES
Ten points of comparison - both among developing countries, and
between developing and developed countries:
1. Lower levels of living and productivity
2. Lower levels of human capital
3. Higher levels of inequality and absolute poverty
4. Higher population growth rates
5. Greater social fractionalization
6. Larger rural population - rapid migration to cities
7. Lower levels of industrialization and manufactured exports
8. Adverse geography
9. Underdeveloped financial and other markets
10. Colonial Legacies – quality of institutions
Income & Productivity - The 12 Most- and Least-
Populated Countries and Their Per Capita
Income, 2017

Source: World Bank World Development Indicators

Human Capital Attainments - Under-5 Mortality
Rates, 1990 and 2017

Source: World Development Indicators

Human Capital Attainments - Primary School
Enrolment and Pupil–Teacher Ratios, 2017

Source: World Development Indicators

Population Growth - Crude Birth Rates Around
the World, 2018

Source: Population Reference Bureau: Births per 1,000 population

 Share of the Population Employed in the Agricultural, Industrial,
and Service Sectors in Selected Countries, 1990–92 and 2008–
2011 (%)

Source: World Bank, World Development Indicators, 2013 (Washington, D.c.: World Bank, 2013), tab. 2.3
NATURE AND ROLE OF ECONOMIC INSTITUTIONS
Institutions provide “rules of the game” of economic life
 Follows general framework of Nobel Laureate Douglass North

Salient institutions include the nature and extent of:

Property rights
Contract enforcement
Restriction of coercive, fraudulent and anti-competitive behavior
Provision of access to opportunities for the broad population
Constraining the power of elites
Conflict management
Other institutions provide improved coordination; social insurance; and
predictable macroeconomic stability
THE NATURE AND ROLE OF ECONOMIC
INSTITUTIONS: SOME CAVEATS AND NUANCES
Most importantly: Good institutions may both cause development, and improve as a result of development
In addition:
‒ The institutions on the previous slide are correlated
‒ It is not clear which of these institutions matter most
‒ Unclear how specific in form institutions must be to fulfill their main function
‒ Progress may be made when only some institutions are of high quality; but further progress may
require improving quality of additional institutions
‒ The specifics of their relative importance, and the sequence of improving them, may well vary by
country
‒ China provides an important case of transitional institutions, examined in case study for Chapter 4
‒ Note : A “free market economy” is not the only example of a market economy
INCLUSIVE VS EXCLUSIVE INSTITUTIONS
Absolutist vs Pluralist Political Institution
‒ Political institutions → shape who has power in society → how power is used
‒ Absolutist Political Institutions: power distribution is narrow & unconstrained
‒ Pluralist Political Institutions: power distribution is broad & constrained
Effective Centralized state vs Failed state
‒ Effective centralized state + Pluralist political institutions = Inclusive Political
Institutions → Inclusive Economic Institutions → Successful development
performance
‒ Extractive Political Institutions → power to narrow elites → few restrictions →
Extractive Economic Institutions
‒ https://www.youtube.com/watch?v=jsZDlBU36n0