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

University of Aarhus Economics Working Paper No. 2007-2

40 Pages Posted: 6 Jun 2008  

Martin Paldam

University of Aarhus - Department of Economics

Erich Gundlach

University of Hamburg

Multiple version iconThere are 2 versions of this paper

Date Written: May 25, 2008

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 (zones) 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. However, democracy is mainly an effect of development as suggested by the GT. 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.

Keywords: Grand transition, primacy of institutions, democracy, corruption, development

JEL Classification: B25, O1

Suggested Citation

Paldam, Martin and Gundlach, Erich, Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions (May 25, 2008). Available at SSRN: https://ssrn.com/abstract=1141746 or http://dx.doi.org/10.2139/ssrn.1141746

Martin Paldam

University of Aarhus - Department of Economics ( email )

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

Erich Gundlach (Contact Author)

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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