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APORDE 2009
Of Risk and Institutions:
Development as
Structural Change
Nicolas Meisel
AFD (French Development Agency)
REFERENCES
INSTITUTIONAL PROFILES DATABASE 2006
http://www.cepii.fr/anglaisgraph/bdd/institutions.htm
N. Meisel and J. Ould Aoudia (2008), ‘‘Is ‘Good Governance’ a Good
Development Strategy?’’, AFD Working Paper No. 58.
N. Meisel and J. Ould Aoudia (2007), ‘‘A New Institutional Database:
‘Institutional Profiles 2006’ ’’, AFD Working Paper No. 46.
All these texts can be downloaded from:
http://www.afd.fr/jahia/Jahia/home/chercheur/pid/1916
Nicolas Meisel : [email protected]
Of Risk and Institutions:
Development as Structural Change
1. Institutions, growth and violence
2. A micro view on risk and institutions:
Moving from interpersonal to impersonal
institutions
3. The macro view: Development as structural
and institutional change
I - Institutions, growth and
violence
• Orthodox economics: institutions
neglected
• Institutional economics: Institutions are
key determinants of growth
• Anthropology: Institutions are much more
than economic devices. They prevent
violence and make societies hold together.
4
Comparing the scope of Institutional Profiles
Database with the 6 World Governance Indicators
IPD
WGI
5
I - Institutions, growth and
violence
• Orthodox economics: institutions
neglected
• Institutional economics: Institutions are
key determinants of growth
• Anthropology: Institutions are much more
than economic devices. They prevent
violence and make societies hold together.
6
II - A micro view on risk and institutions
• Interpersonal versus impersonal institutions
• Relationship-based regulation systems:
Subsistence institutions and the priority of
individual risk diversification. The poor are
rational.
• Impersonal regulation systems: capitalist
institutions and profit maximisation.
7
Principal Component Analysis on Institutional Profiles
Database 2006 – First axis = 35% of Variance
CUB
IRN
SYR
7
CHN
TUN
VNM
5
Importance of the role of the State
UZB
SGP
SAU
THA
3
MYS
RUS
EGY
TAI
DZA
BWA
ZWE
ETH
JPN
KOR
KWT
NOR
ISR
1
KAZ
DEU
UKR
VEN
-9
IND
MOZ
MEX
ROM
-1
GHA
PAK
CMR
TUR
JOR
BGD
MRT
SEN
ARG
ZAF
ESP
POL
GRC
PRT
BGR
LBN
PHL
FRA
ITA
LKA
DOM
MDG
BFA
COL
UGA
KEN
MAR
CIV
SWE
6
11
CAN
CZE
HUN
EST
LTU
NZL
IRL
GBR
USA
CHL
HKG
-3
KHM
GTM
NGA
PER
TCD
1
GAB
YEM
MLI
BRA
IDN
-4
MUS
BOL
NER
BEN
-5
Degree of depersonalisation / formalisation of social regulation systems
8
AXIS 1 opposes two types of social regulations
and trust (interpersonal vs systemic)
Personal relations
Impersonal relations
Permanent negociations
Respect of stable contracts
Struggle for power
Stability of power through impersonal rules
Ascribed relations
Voluntary relations
Primacy of status
Primacy of contract
Loyalty - reciprocity
Legality – contractual and merchant
relations
Informal institutions
Formal institutions
Community based societies
Law based societies
Duration of organizations linked to the
presence of the founders
Permanent organizations
Economy embeded in the society
Autonomy of the economy
Economy of subsistence
Economy of profit
‘Bad governance’
‘Good governance’
9
« Good
Governance » and the Level of income (GDP/cap)
12
income
level
y = 0,2665x + 7,9346
R2 = 0,7126
11
NOR
USA
Level of development (log GDP per capita 2004)
JPN
ITA
KWT
SGP
HKG
ESP
10
PRT
TAI
SAU
NZL
GRC
IRL
SWE
CAN
DEU
ISR
KOR
MEX
FRA
GBR
CZE
HUN
9
LBN
MUS
GAB
RUS VEN
PER
GTM
KAZ
IRN
DZA
SYR
EGY
UKR
CIV
PAK
YEM
NGA
ZWE
VNM
MLI
BFA
ARG
ZAF BRA
BGR
PHL
LKA
IND
6
GHA
BEN
EST
CHL
COL
7
SEN
LTU
KEN
BGD
UZB
8
DOM
IDN
BOL
CMR
MRT
TUN THA
CHN
MAR
MYS
TUR
ROM
CUB
JOR
BWA
POL
MDG
KHM
UGA
MOZ
TCD
NER
5
'good governance'
ETH
4
-9
-4
1
6
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
11
10
II - A micro view on risk and institutions
• Interpersonal versus impersonal institutions
• Relationship-based regulation systems:
the priority of individual risk diversification.
The poor are rational.
• Impersonal regulation systems: the
possibility of profit maximisation.
11
GOVERNANCE CULTURES AND TRANSACTION COSTS
Marginal
Transaction Cost
Informal
Relationship-based
Governance
Impersonal
Formal Rules-based
Governance
Where Systemic /
Institutional Trust
becomes Needed
Size of population / markets
12
III - The macro view: Development as
structural and institutional change
• Development as structural change: From
subsistence to capitalist accumulation
economies
• Development as institutional transition:
the risk of social destabilisation
• Development as learning process:
economic and political
13
What is Institutional Change: An Uncertain Process
Rules enforcement
In this phase, need for
special Governance
Capacities to offset this
high uncertainty
Relationship-based
Social Regulation
System
- Ascribed relations
(Fukuyama)
Impersonal Social
Regulation System
- Voluntary relations
HIGHER
UNCERTAINTY
Size of population / markets
Transition highly uncertain due to huge social costs
and rational resistance by insiders and societies
14
III - The macro view: Development as
structural and institutional change
• Development as structural change: From
subsistence to capitalist accumulation
economies
• Development as institutional transition:
the risk of social destabilisation
• Development as learning process:
economic and political
15
12
income
level
y = 0,2665x + 7,9346
If ‘Good Governance’ is
linked to the LEVEL of
income…
R2 = 0,7126
11
NOR
USA
Level of development (log GDP per capita 2004)
JPN
ITA
KWT
SGP
HKG
ESP
10
PRT
TAI
SAU
NZL
GRC
GBR
IRL
SWE
CAN
DEU
ISR
KOR
MEX
FRA
CZE
HUN
9
LBN
MUS
GAB
RUS VEN
PER
GTM
KAZ
IRN
DZA
SYR
EGY
CHN
MAR
UKR
CIV
MRT
PAK
YEM
NGA
ZWE
VNM
MLI
BFA
BGR
PHL
LKA
IND
6
GHA
BEN
LTU
COL
7
SEN
POL
ARG
ZAF BRA
KEN
BGD
UZB
8
DOM
IDN
BOL
CMR
MYS
TUR
ROM
CUB
JOR
BWA
TUN THA
EST
CHL
MDG
KHM
UGA
MOZ
TCD
NER
5
'good governance'
ETH
4
-9
-4
1
6
11
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
10
y = 0,0861x + 1,9816
CHN
economic
performance
R2 = 0,0522
It is NOT linked to
income GROWTH
(policy-makers’ concern)
Growth in GDP per capita (1990-2004)
8
IRL
VNM
6
KHM
TAI
DOM
MOZ
UGA
MLI
EGY
HUN
GRC
YEM
GTM
KAZ
ETH
BEN
UZB
BFA
MAR
NGA
CMR
-7
TUR
PHL
BOL
SEN
JOR
-3
SAU
ROM
MEX
DZA
-5
NOR
HKG
PRT
IDN
PAK
2
CZE
THA
GHA
PER
-9
CHL
MYS
IRN
SYR
MRT
CUB
BGD
TCD
SGP
POL
MUS
TUN
4
LKA
IND
LBN
EST
KOR
BWA
-1
ARG
BRA
ESP
LTU
SWE
DEU
JPN
ZAF
2
FRA
ISR
GBR
CAN
ITA
BGR
COL
NZL
USA
4
6
8
10
GAB
-1
RUS
KWT
KEN
NER
VEN
CIV
MDG
ZWE
'good governance'
-3
Degree of depersonalisation / formalisation of rules (values along Axis 1 of the PCA)
16
12
Croissance du PIB par tête / Growth in GDP per cap
What is the Secret of Institutional Change?
performance
économique /
economic
performance
y = 0.0861x + 1.9816
R2 = 0.0522
CHN
IRL
2
VNM
KHM
TAI
DOM
LKA
IND
MUS
TUN
CUB
THA
GHA
YEM
MAR
NGA
GTM
PAK
ETH
BFA
UZB
PRT
IDN
KAZ
BEN
MRT
TUR
JOR
ESP
LTU
NOR
CZE
HKG
USA
ISR
NZL
FRA
GBR
CAN
DEU
SWE
ITA
PHL
SEN
ARG
BRA
BOL
DZA
SAU
ROM
MEX
CMR
1
HUN
GRC
PER
SYR
MYS
IRN
TCD
3
POL
BGD
MLI
SGP
CHL
LBN
UGA
EGY
EST
KOR
BWA
MOZ
BGR
COL
ZAF
JPN
GAB
RUS
KWT
KEN
NER
VEN
CIV MDG
ZWE
"bonne gouvernance" / "good governance"
17