Download Do institutions cause growth Edward L. Glasser Rafael La

Do institutions cause growth
Edward L. Glasser
Rafael La Porta
Florencio Lopez-de-Silanes
Andrei Shleifer
Carefully thought out and presented by
Gilbert Mbara
Olexiy Polkovnikov
Warsaw University
October 2007
Pillars of Reasoning

Institutions are defined by North (1981) as:
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“a set of rules, compliance procedures and moral and ethical
behavioral norms designed to CONSTRAIN the behavior of
individuals in the interests of maximizing the wealth or utility of
principals” (p. 201 – 202).
Such constraints need to be:
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
Reasonably permanent and/or;
Durable
GPLS (2004) Critique

Widely used measures of institutions describe an
outcome of the development and not the “deepness” of
the constraints.

Highly correlated with per capita income and volatile,
might be explained as the result of policy choices and
not constraints.

Institutions are presented as the result of human capital
endowment.
Our Critiques

Externality and Internality of constraints to different
factors.

Benevolence and Malice of constraints.

Constraints are subject to changes.

High-human capital, lots of rent-seeking behavior.
Our Critiques cont.

Volatility is not problem itself.

Existence of practices.

Obedience to laws.

Comprehensiveness of laws and regulations for
institutions’ definition.
Better approach

Cross county growth regressions generally help to
identify the factors that explain cross country variation in
growh performance.

Such studies are so numerous that the number of
potential growth determinants probably exceed the
number of countries in a cross country sample.
Approach cont.

Such problems can be addressed by focusing on the
importance of a particurlar set of variables [e.g. FDI,
Trade and Institutions]

Such a focus can then be used to design appropriate
policy for a particurlar country.
Example

Using time series for a single country, regress yearly
growth rates on:

Lagged values of educational attainments.
Investments.
Trade.
Linear combination of measures of institutional quality.

Other relevant variables, that can be affected by policy.
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Thanks