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Institution Building and Political Economy

  • Majumdar, Sumon

    (Queens University)

  • Mukand, Sharun W

    (University of Warwick)

The paper examines the role of policy intervention in engendering institutional change. We show that first order changes in the political structure (e.g. introduction of democracy) may be undermined by local political interests and result in persistence in institutions and the (poor) quality of governance. The paper identifies two effects of development policy as a tool for institutional change. One, by increasing political accountability, it may encourage nascent democratic governments to invest in good institutions – the incentive effect. However, we show that it also increases the incentive of the rentier elite to tighten their grip on political institutions – the political control effect. Which of these dominate determine the overall impact on institutional quality. Under some conditions, by getting the elite to align their economic interests with that of the majority, development policy can lead to democratic consolidation and economic improvement. However if elite entrenchment is pervasive, then comprehensive change may require more coercive means.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/131-2013_mukand.pdf
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Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 131.

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Date of creation: 2013
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Handle: RePEc:cge:wacage:131
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  1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, 06.
  2. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  3. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  4. Benjamin F. Jones & Benjamin A. Olken, 2005. "Do Leaders Matter? National Leadership and Growth Since World War II," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 835-864.
  5. 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, Oxford University Press, vol. 114(1), pages 83-116.
  6. Acemoglu, Daron & Robinson, James A, 1998. "Why did the West Extend the Franchise? Democracy, Inequality and Growth in Historical Perspective," CEPR Discussion Papers 1797, C.E.P.R. Discussion Papers.
  7. Myerson, Roger B., 2006. "Federalism and Incentives for Success of Democracy," Quarterly Journal of Political Science, now publishers, vol. 1(1), pages 3-23, January.
  8. Humberto Llavador & Robert J. Oxoby, 2004. "Partisan Competition, Growth and the Franchise," Working Papers 109, Barcelona Graduate School of Economics.
  9. Bharatee Bhusana Dash & Sami Angara V. Raja, 2009. "Institutions and the quality of governance: an empirical study on interstate differences in economic development in India," Asia-Pacific Development Journal, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP), vol. 16(1), pages 1-26, June.
  10. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
  11. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
  12. Timothy Besley, 2005. "Political Selection," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 43-60, Summer.
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