Institutional change and development from a dynamic perspective

Zhaotian Luo and Tianyang Xi

China Economic Journal, 2025, vol. 18, issue 2, 196-208

Abstract: This paper revisits and extends Acemoglu and Robinson’s dynamic theory of institutional change, which models democratization as a Markov process shaped by inequality and the threat of revolution. We offer a reformulation that centers on income inequality, measured by the share of the poor, providing a more transparent and empirically accessible framework. The model also introduces new dynamics when inequality lies in an intermediate range, where both democratization and revolution occur with positive probability. These outcomes are inherently path-dependent and help explain varied historical trajectories of regime change. Beyond the original framework, the paper highlights alternative views of the state, particularly its potential independence from dominant interest groups. It also raises concerns about causal inference in the relationship between democracy and development, given the endogenous co-evolution of institutions and inequality.

Date: 2025
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DOI: 10.1080/17538963.2025.2492999

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