Kiel Working Papers, Kiel Institute for World Economics
No 1315:
Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions
Martin Paldam and 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 con-vincing 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.
Keywords: Grand transition, primacy of institutions, democracy, corruption, development; (follow links to similar papers)
JEL-Codes: B25,; O1; (follow links to similar papers)
40 pages, March 2007
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