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Institutions and Convergence (preliminary version)

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  • Leszek Balcerowicz
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    Abstract

    Institutional variables are the most important factor explaining real convergence. But what are institutions? This paper examines the relationship between institutions and policies, institutions and organisations, and formal and informal institutions. The concept of propelling and stabilizing institutions is introduced and used to explain differences in real convergence. Finally, issues of institutional changes are analysed based on an analytical framework which consists of initial conditions and two types of forces: collectivist and liberal. I first briefly present some basic facts about economic convergence and divergence over the last 200 years. I then discuss how the problem of long-run growth has been treated in the economic literature. Section 3 attempts to classify the concept of institutions – the key explanatory variable in the deeper analysis of the relative pace of development. In Section 4 I describe two types of institutions, propelling and stabilizing, and their relationship to economic growth. Based on previous sections and the empirical literature on convergence, I then formulate some broad propositions concerning why countries converge or diverge (Section 5). The explanation runs in terms of institutional variables. In Section 6 I go one level deeper and ask what explains institutional change

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    File URL: http://www.case-research.eu/upload/publikacja_plik/14889578_sa342.pdf
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    Bibliographic Info

    Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0342.

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    Length: 39 Pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:sec:cnstan:0342

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    Keywords: institutions; policies; real convergence; institutional change;

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    1. Hnatkovska, Viktoria & Loayza, Norman, 2004. "Volatility and growth," Policy Research Working Paper Series 3184, The World Bank.
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    4. Becker, Gary S., 1985. "Public policies, pressure groups, and dead weight costs," Journal of Public Economics, Elsevier, vol. 28(3), pages 329-347, December.
    5. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
    6. Douglass C North & John Joseph Wallis & Barry R. Weingast, 2006. "A Conceptual Framework for Interpreting Recorded Human History," NBER Working Papers 12795, National Bureau of Economic Research, Inc.
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    9. Stefano Scarpetta & Philip Hemmings & Thierry Tressel & Jaejoon Woo, 2002. "The Role of Policy and Institutions for Productivity and Firm Dynamics: Evidence from Micro and Industry Data," OECD Economics Department Working Papers 329, OECD Publishing.
    10. Stanley Fischer, 1991. "Growth, Macroeconomics, and Development," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 329-379 National Bureau of Economic Research, Inc.
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    14. Aslund,Anders, 2002. "Building Capitalism," Cambridge Books, Cambridge University Press, number 9780521805254, October.
    15. John Luke Gallup & Jeffrey D. Sachs & Andrew D. Mellinger, 1998. "Geography and Economic Development," Harvard Institute of Economic Research Working Papers 1856, Harvard - Institute of Economic Research.
    16. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
    17. Willi Leibfritz & John Thornton & Alexandra Bibbee, 1997. "Taxation and Economic Performance," OECD Economics Department Working Papers 176, OECD Publishing.
    18. North, Douglass C. & Weingast, Barry R., 1989. "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 803-832, December.
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