Institutions, Institutional Change, and Economic Performance

Abstract

Why are some countries much richer than others? This technical note proposes a framework to begin answering this question. The first part identifies inefficient institutions as the root cause of the economic differences between societies. The second part analyzes how these institutions change. And the final part suggests how lessons from this institutional framework can be applied.

Excerpt

UVA-BP-0475

INSTITUTIONS, INSTITUTIONAL CHANGE,

AND ECONOMIC PERFORMANCE

Why are some countries much richer than others? This technical note proposes a framework to begin answering this question. The first part identifies inefficient institutions as the root cause of the economic differences between societies. The second part analyzes how these institutions change. And the final part suggests how lessons from this institutional framework can be applied.

Institutions and Economic Performance

Economic theory implies that over time the economies of different countries will attain similar levels of wealth. When there is competition between organizations (be they tribes, companies, or countries), the less effective organizations die out and are replaced by more effective organizations.

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Keywords: economic theory