What Does Political Economy Tell Us About Economic Development - and Vice Versa?

Abstract

Keefer reviews how three pillars of political economy - collective action, institutions, and political market imperfections - help us answer the question: Why do some countries develop and others do not? Each makes tremendous advances in our understanding of who wins and who loses in government decisionmaking, generally, but only a subset of this literature helps us answer the question. The study of political market imperfections strongly suggests that the lack of credibility of pre-electoral political promises and incomplete voter information are especially robust in explaining development outcomes. From the institutional literature, the most powerful explanation of contrasting development outcomes links political checks and balances to the credibility of government commitments.

This paper - a product of Investment Climate, Development Research Group - is part of a larger effort in the group to understand the political economy of economic development.