Global Economic Development Class

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Global Economic DevelopmentClass 23
Institutions Questions What are good
institutions? Today North. Getting into the
black box of institutions. Again, institutions
vs. policies vs. geography vs. cultural
determinism? Rodrik and Glaeser Which
institutions should be implemented first?
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Some facts Figure 1 Cost of registration (as
of GNP per capita) by income this is not a good
measure!! Figure 2 Number of procedures, by
income this is better! Figure 3 Procedures and
corruption Figure 4 Complexity of
litigation Figure 5 Media ownership
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• North Institutions
• Definition Institutions are the humanly devised
  constraints that structure political, economic
  and social interaction. Formal and informal.
• Objective of institutions create order, reduce
  uncertainty.
• Institutions and technology determine choice set.
  Determine transaction and production costs.
• The central issue of economic history and of
  economic development is to account for the
  evolution of political and economic institutions
  that create an economic environment that induces
  increasing productivity. P.98
• Main elements of model of North
• Institutions (determine)
• Transaction costs (which with)
• Increasing returns (or economies of scale)
  (determine)
• Specialization and exchange (which determine)
• Growth and development

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In some societies deviance and innovation are
viewed as threats to group survival then the
institutions, formal or more probably informal,
will not help productivity growth. But in some
primitive institutional settings, the kind of
knowledge and skills that will pay off will not
result in institutional evolution towards more
productive economies. P.102. Three reductions in
transaction costs i) transaction costs of
capital ii) information costs iii) risk.
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• Institutional quality (Rodrik) safe property
  rights, rule of law, private incentives aligned
  with social objectives, monetary and fiscal
  policies grounded in institutions (central bank,
  treasury), social insurance, civil liberties,
  political representation
• Formal and informal institutions (Russia vs.
  China)
• Stimulating growth and sustaining it
• Problems with measure of institutions
• Investors will rate institutional quality high
  when the economy is doing well.
• Important relaxation of specific constraints
  that were holding back private economic activity
• an attitudinal change on the part of the top
  political leadership towards a more
  market-oriented, private-sector-friendly policy
  framework often plays as large a role as the
  scope of policy reform itself. p.14

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Rodrik et al Results Institutions (rule of law
and defense of property rights) trumps trade
openness and geography. Institutions is
instrumented with settler mortality trade
openness is instrumented with a gravity model
(geographical variables). But it does not mean
that colonial experience determines income.
Settler mortality is just an instrumental
variable it does not give us a theory. The
distinction between institutions and policies is
murky, as these examples illustrate. The reforms
that Japan, South Korea, and China undertook were
policy innovations that eventually resulted in a
fundamental change in the institutional
underpinning of their economies. Implication
Not to regress income on policies AND
institutions (institutions may contain already
the information of policies).
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Next class Acemoglus and Glaesers et al take
on institutions
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Falta Ordenar las ideas generales (y, en
particular, de North) Poner las principales ideas
de Rodrik y Glaeser Subir los graficos