Emerging evidence shows a strong correlation between institutions and economic growth, and explains the recent research shift from focus on resources and resource productivity to institutions as determinants of economic growth. The positive correlation is read by some as indication that economies with similar institutions should perform approximately the same, and by extension embedded economies should perform like their host(s). However, observation shows that some embedded economies, such as some U.S. Native economies, perform worse than their host(s) sometimes. There are two reasons for the difference: (a) host-embedded interactions are weak; and (b) the institutions of embedded- and host economies are similar only at the infrastructure level, but very dissimilar at the supestructure level. Within general host economies infrastructural and supperstructural elements of institutions work together to stimulate and sustain economic growth, while within embedded economies they may pull in opposing directions thereby slowing, preventing, or even reversing economic growth. This paper first sets up a practical model of host-embedded interactions assumed to take place via the states of the host economy (Yj) and technology (Aj) - both of which affect local production (Yi), where Yj affects Yi directly and Aj affects Yi indirectly through human capital. Second, the paper introduces geo-engineering quantity-quality models that would allow assessment of the separate effects on the growth of embedded economies of infrastructural and superstructural aspects of institutions. An obvious weakness of the paper is that it leaves empirical estimations and tests for a separate study.
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Length: 21 pages Date of creation: 03 Feb 2004 Date of revision: Handle: RePEc:wpa:wuwpdc:0402001
Note: Type of Document - word perfect doc; prepared on WinXP; pages: 21; figures: None. Author invites comments and criticisms Contact details of provider: Web page: http://129.3.20.41
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