Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions

36 Pages Posted: 18 Jan 2008

See all articles by Martin Paldam

Martin Paldam

Aarhus University - Department of Economics

Erich Gundlach

University of Hamburg

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Abstract

The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as transitions occurring at roughly the same level (zone) of development. The Primacy of Institutions (PoI) view claims that economic development is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find convincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI view. However, democracy is mainly an effect of development as suggested by the GT view. We conclude that the empirical results are far too mixed to allow for a robust assessment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.

Suggested Citation

Paldam, Martin and Gundlach, Erich, Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions. Kyklos, Vol. 61, No. 1, pp. 65-100, February 2008. Available at SSRN: https://ssrn.com/abstract=1084219 or http://dx.doi.org/10.1111/j.1467-6435.2008.00393.x

Martin Paldam (Contact Author)

Aarhus University - Department of Economics ( email )

Universitetsparken
Building 350
DK-8000 Aarhus C
Denmark
+45 8942 1133 (Phone)
+45 8613 6334 (Fax)

Erich Gundlach

University of Hamburg ( email )

Department of Economics
Von-Melle-Park 5
Hamburg, 20146
Germany
+49 40 428384589 (Phone)

HOME PAGE: http://www.erichgundlach.de

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