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Two Views on Institutional Development: The Grand Transition vs the Primacy of Institutions

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  • Martin Paldam
  • Erich Gundlach

Abstract

The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zones) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find convincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of development as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.

Suggested Citation

  • Martin Paldam & Erich Gundlach, 2007. "Two Views on Institutional Development: The Grand Transition vs the Primacy of Institutions," DEGIT Conference Papers c012_004, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c012_004
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    File URL: http://degit.sam.sdu.dk/papers/degit_12/C012_004.pdf
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    1. repec:cup:apsrev:v:53:y:1959:i:01:p:69-105_00 is not listed on IDEAS
    2. Kormendi, Roger C. & Meguire, Philip G., 1985. "Macroeconomic determinants of growth: Cross-country evidence," Journal of Monetary Economics, Elsevier, vol. 16(2), pages 141-163, September.
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    1. Lejla TERZIĆ, 2017. "Does institutional environment affect the economic development? Evidence from selected CEE countries," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(612), A), pages 19-28, Autumn.

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