Social Institutions and Economic Growth: Why England and Not China Became the First Modern Economy
54 Pages Posted: 17 Mar 2011 Last revised: 23 Nov 2012
Date Written: November 12, 2012
The institutional foundation of economic growth extends beyond institutions that limit the grabbing hand of the state and effectively enforce contracts. Growth predicates on social institutions that foster the development and use of productivity-enhancing knowledge. In particular, growth-promoting social institutions (1) limit the individual-level downside risk associated with developing new useful knowledge and (2) mitigate the threat of violent responses to labor-saving innovations. This paper substantiates these claims by examining the role of social institutions in rendering England, and not China, the first modern economy. Its comparative and historical institutional analysis combines historical details and an endogenous growth model incorporating England's and China's pre-modern social institutions. The analysis also reveals that even when the elite design social institutions, social and cultural norms affect their form and that institutional forms matter, particularly due to institutions' unforeseen consequences.
Previous title: Risk, Institutions and Growth: Why England and Not China?
Keywords: institutions, risk, growth, development, innovations, poor relief, culture
JEL Classification: O10, O31, O43, N10
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