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Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions

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  • Martin Paldam
  • Erich Gundlach

    ()
    (School of Economics and Management, University of Aarhus, Denmark)

Abstract

The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as tran¬sitions occurring at roughly the same level (zones) of development. The Primacy of Insti¬tu¬tions (PoI) view claims that economic develop¬ment is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find con- vincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of develop¬ment as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assess- ment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2007-02.

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Length: 38
Date of creation: 05 Mar 2007
Date of revision:
Handle: RePEc:aah:aarhec:2007-02

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Web page: http://www.econ.au.dk/afn/

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Keywords: Grand transition; primacy of institutions; democracy; corruption; development;

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  1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2002. "Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development," NBER Working Papers 9305, National Bureau of Economic Research, Inc.
  2. Hristos Doucouliagos & Mehmet Ulubasoglu, 2006. "Democracy and Economic Growth: A Meta-Analysis," Economics Series 2006_04, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  3. Daron Acemoglu & Simon Johnson & James A. Robinson & Pierre Yared, 2008. "Income and Democracy," American Economic Review, American Economic Association, vol. 98(3), pages 808-42, June.
  4. Kai Carstensen & Erich Gundlach, 2006. "The Primacy of Institutions Reconsidered: Direct Income Effects of Malaria Prevalence," World Bank Economic Review, World Bank Group, vol. 20(3), pages 309-339.
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  8. 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.
  9. Gundlach, Erich & Rudman, Desmond & Wößmann, Ludger, 1998. "Second thoughts on development accounting," Kiel Working Papers 895, Kiel Institute for the World Economy.
  10. Borooah, Vani K. & Paldam, Martin, 2007. "Why is the world short of democracy?: A cross-country analysis of barriers to representative government," European Journal of Political Economy, Elsevier, vol. 23(3), pages 582-604, September.
  11. Francesco Busato & Enrico Marchetti, 2009. "Skills, sunspots and cycles," Journal of Economics, Springer, vol. 97(3), pages 189-215, July.
  12. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
  13. Baumol, William J, 1986. "Productivity Growth, Convergence, and Welfare: What the Long-run Data Show," American Economic Review, American Economic Association, vol. 76(5), pages 1072-85, December.
  14. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
  15. Baumol, William J, 1972. "Macroeconomics of Unbalanced Growth: Reply," American Economic Review, American Economic Association, vol. 62(1), pages 150, March.
  16. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
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