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The Persistence of Underdevelopment:Institutions, Human Capital or Constituencies?

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  • Raghuram G. Rajan

    ()

  • Luigi Zingales

    ()

Abstract

Why is underdevelopment so persistent? One explanation is that poor countries do not have institutions that can support growth. Because institutions (both good and bad) are persistent, underdevelopment is persistent. An alternative view is that underdevelopment comes from poor education. Neither explanation is fully satisfactory, the first because it does not explain why poor economic institutions persist even in fairly democratic but poor societies, and the second because it does not explain why poor education is so persistent. This paper tries to reconcile these two views by arguing that the underlying cause of underdevelopment is the initial distribution of factor endowments. Under certain circumstances, this leads to self-interested constituencies that, in equilibrium, perpetuate the status quo. In other words, poor education policy might well be the proximate cause of underdevelopment, but the deeper (and more long lasting cause) are the initial conditions (like the initial distribution of education) that determine political constituencies, their power, and their incentives. Though the initial conditions may well be a legacy of the colonial past, and may well create a perverse political equilibrium of stagnation, persistence does not require the presence of coercive political institutions. We present some suggestive empirical evidence. On the one hand, such an analysis offers hope that the destiny of societies is not preordained by the institutions they inherited through historical accident. On the other hand, it suggests we need to understand better how to alter factor endowments when societies may not have the internal will to do so [NBER WP].

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Bibliographic Info

Paper provided by eSocialSciences in its series Working Papers with number id:447.

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Date of creation: Mar 2006
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Handle: RePEc:ess:wpaper:id:447

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Keywords: underdevelopment; stagnation; colonial legacy; political institutions; education; Economics; Development Economics;

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References

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Citations

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Cited by:
  1. Easterly, William, 2007. "Inequality does cause underdevelopment: Insights from a new instrument," Journal of Development Economics, Elsevier, vol. 84(2), pages 755-776, November.
  2. Berg, Andrew & Ostry, Jonathan D. & Zettelmeyer, Jeromin, 2012. "What makes growth sustained?," Journal of Development Economics, Elsevier, vol. 98(2), pages 149-166.
  3. Gradstein, M., 2007. "Institutional Traps and Economic Growth," Cambridge Working Papers in Economics 0769, Faculty of Economics, University of Cambridge.
  4. Sarmistha Pal & Sugata Ghosh, 2008. "The Elite and the Marginalised: an Analysis of Public Spending on Mass Education in the Indian States," CEDI Discussion Paper Series 08-15, Centre for Economic Development and Institutions(CEDI), Brunel University.
  5. Altug, Sumru G. & Filiztekin, Alpay & Pamuk, Sevket, 2007. "The Sources of Long-term Economic Growth for Turkey, 1880-2005," CEPR Discussion Papers 6463, C.E.P.R. Discussion Papers.
  6. Gradstein, Mark, 2007. "Institutional Traps and Economic Growth," CEPR Discussion Papers 6414, C.E.P.R. Discussion Papers.
  7. Lisa Grazzini, 2009. "Istruzione, Crescita e Democrazia: le Teorie della Complessa Relazione," Working Papers Series wp2009_01.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze dell'Economia e Dell'Impresa.
  8. Castelló-Climent, Amparo, 2008. "On the distribution of education and democracy," Journal of Development Economics, Elsevier, vol. 87(2), pages 179-190, October.
  9. Besley, Timothy J. & Ghatak, Maitreesh, 2009. "The de Soto Effect," CEPR Discussion Papers 7259, C.E.P.R. Discussion Papers.
  10. João Paulo Martin Faleiros & Denisard Cnéio de Oliveira Alves, 2008. "Modelo de Crescimento Baseado nas Exportações: Evidências empíricas para Chile, Brasil e México, em uma perspectiva Não Linear," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807170923500, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  11. Alberto Chong & Mark Gradstein, 2006. "Redistributional Preferences and Imposed Institutions," Research Department Publications 4482, Inter-American Development Bank, Research Department.

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