Institutions as the Fundamental Cause of Long-Run Growth

Daron Acemoglu, Simon Johnson and James Robinson

No 4458, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper develops the empirical and theoretical case that differences in economic institutions are the fundamental cause of differences in economic development. We first document the empirical importance of institutions by focusing on two ?quasi-natural experiments? in history, the division of Korea into two parts with very different economic institutions and the colonization of much of the world by European powers starting in the fifteenth century. We then develop the basic outline of a framework for thinking about why economic institutions differ across countries. Economic institutions determine the incentives of and the constraints on economic actors, and shape economic outcomes. As such, they are social decisions, chosen for their consequences. Because different groups and individuals typically benefit from different economic institutions, there is generally a conflict over these social choices, ultimately resolved in favour of groups with greater political power. The distribution of political power in society is in turn determined by political institutions and the distribution of resources. Political institutions allocate de jure political power, while groups with greater economic might typically possess greater de facto political power. We therefore view the appropriate theoretical framework as a dynamic one with political institutions and the distribution of resources as the state variables. These variables themselves change over time because prevailing economic institutions affect the distribution of resources, and because groups with de facto political power today strive to change political institutions in order to increase their de jure political power in the future. Economic institutions encouraging economic growth emerge when political institutions allocate power to groups with interests in broad-based property rights enforcement, when they create effective constraints on power-holders, and when there are relatively few rents to be captured by power-holders. We illustrate the assumptions, the workings and the implications of this framework using a number of historical examples.

JEL-codes: D70 D90 O10 (search for similar items in EconPapers)
Date: 2004-06
References: Add references at CitEc
Citations: View citations in EconPapers (402)

Downloads: (external link)
https://cepr.org/publications/DP4458 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Chapter: Institutions as a Fundamental Cause of Long-Run Growth (2005)
Working Paper: INSTITUTIONS AS THE FUNDAMENTAL CAUSE OF LONG-RUN GROWTH (2004)
Working Paper: Institutions as the Fundamental Cause of Long-Run Growth (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4458

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4458

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().