Isleide Zissimos

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The Rules of the game in economic growth

• Isleide Zissimos
• Vanderbilt University

Based on the presentation by Daron Acemoglu
titled Understanding Institutions at Lionel
Robbins Lectures, London School Economics,
2004. Available at http//cep.lse.ac.uk/events/lio
nel_robbins.asp
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Outline

• Sources of prosperity
• Institutions brief discussion, definition, and
  types
• Institutions and economic performance
• Natural experiment South and North Korea
• Some questions

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Sources of prosperity

• Why are some countries poorer than others?

GDP per capita (1990 International Geary Dhamis
dollars)
Source The World Economy Historical Statistics
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Sources of prosperity

• Traditional neoclassical growth models
• ?
• Differences in income per capita in terms of
  different paths of factor accumulation
• Solow (1956) saving rates
• Romer (1986) Lucas (1988) technical progress

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Sources of prosperity

• These models provide many insights about the
  mechanics of economic growth.
• What is the fundamental explanation for economic
  growth?

Institutions the rules of the game in economic,
political and social interactions.
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institutions

• Formally,
• "Institutions are the rules of the game in a
  society or, more formally, are the humanly
  devised constraints that shape human
  interaction. North (1990, p. 3).
• ?
• Key point institutions
• are humanly devised
• set constraints
• shape incentives

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institutions

• Economic institutions
• Ex Central Bank Capital, land and labor
  markets Redistributive agents Property rights,
  etc.
• shape economic incentives, contracting
  possibilities, distribution
• Political institutions
• Ex Form of Government Constraints on
  politicians and elites, Separation of powers,
  etc.
• shape political incentives and distribution of
  political power.

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Types of Institutions
INSTITUTIONS
Formal E.g. constitution contracts
Informal E.g. customs, moral codes
E.g. US vs. Latin America
endogenously generated
self-enforcing through strategic interaction of
the agents
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Institutional variation

• Big differences in economic and political
  institutions across countries.
• Enforcement of property rights.
• Legal systems.
• Corruption.
• Entry barriers.
• Democracy vs. dictatorship.
• Constraints on politicians and political elites.
• Electoral rules in democracy.

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Economic performance
Source Acemoglu et al. (2005)
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Economic performance
Source Acemoglu et al. (2005)
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The korean experiment

• Korea economically, culturally and ethnically
  homogeneous at the end of WWII.
• If anything, the North more industrialized.
• Exogenous separation of North and South, with
  radically different political and economic
  institutions.
• Exogenous in the sense that institutional
  outcomes not related to the economic, cultural or
  geographic conditions in North and South.
• Approximating an experiment where similar
  subjects are treated differently.
• Big differences in economic and political
  institutions.
• Communism (planned economy) in the North.
• Capitalism, albeit with government intervention
  and early on without democracy, in the South.
• Huge differences.

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North and south korea
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Some questions

• What determines whether a country is a democracy?
  
• Why, once created, did democracy persist in some
  countries and not in others?
• Can economic institutions be inefficient?
• What is the role of the distribution of political
  power?

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The rules of the game in the development of latin
america

• LAS 294A-1
• T/R - 400-515pm
• Furman 217
• Prof. Isleide R. Zissimos