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Contracting Institutions and Development

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  • Alex Trew

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Abstract

The quality of contracting institutions has been thought to be of second-order importance next to the impact that good property rights institutions can have on long-run growth. Using a large range of proxies for each type of institution, we find a robust negative link between the quality of contracting institutions and long-run growth when we condition on property rights and a number of additional macroeconomic variables. Although the result remains something of a puzzle, we present evidence which suggests that only when property rights institutions are good do contracting institutions appear also to be good for development. Good contracting institutions can reduce long-run growth when property rights are not secured, presumably because the gains from the (costly) contracting institutions cannot be realised. This suggests that contracting institutions can benefit growth, and that the sequence of institutional change can matter.

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Paper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200904.

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Date of creation: 15 Jul 2009
Date of revision: 18 Oct 2010
Handle: RePEc:san:cdmawp:0904

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Keywords: Economic development; institutions.;

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