The Foundational Role and State of Institutions

Richard Marney and Philipp Waeber
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Richard Marney: ResponsAbility Investments, Risk Management (Senior Advisor)
Philipp Waeber: ResponsAbility Investments, Portfolio Management

Chapter 2 in The Emerging Markets Investor’s Guide to Country Risk, 2026, pp 33-54 from Springer

Abstract: Abstract This chapter establishes the foundational role of institutions—defined as the formal and informal “rules of the game” that structure societal interaction—as the primary determinant of long-term economic growth and a stable investment climate. It distinguishes institutions from organizations and synthesizes the seminal work of North, Acemoglu & Robinson, Fukuyama, and others to argue that inclusive, high-quality institutions reduce uncertainty, secure property rights, and incentivize productive investment and innovation. Conversely, extractive or weak institutions foster instability and hinder development. The analysis is applied directly to the investor’s perspective, demonstrating how institutional quality impacts every phase of the investment lifecycle, from origination to resolution in distress, and concludes that a deep understanding of a country’s institutional framework is paramount for successful investment in emerging markets.

Keywords: Institutions; Institutional quality; Economic growth; Investment climate; Rule of law; Property rights; Governance; Inclusive institutions; Extractive institutions; Transaction costs; Sovereign credit ratings; Worldwide Governance Indicators (WGI); Political instability; Institutional change; Development bargain; Mass flourishing; Innovation; Investment lifecycle; Debt restructuring; Emerging Market and Developing Economies (EMDEs); Douglass North; Daron Acemoglu; Francis Fukuyama (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-032-26824-2_2

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DOI: 10.1007/978-3-032-26824-2_2

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