Institutions and Economic Performance: A Review of the Theory and Evidence (original) (raw)

The role of institutions in economic performance

Verslas: Teorija ir Praktika, 2015

The purpose of the article is to survey the significant literature on the role of institutions – formal and informal constraints that affect investment in physical and human capital – in economic performance and propose a new, comprehensive definition and classification of institutions, as well as to develop a conceptual model to illustrate the interaction between institutions and socioeconomic development. The literature shows that institutions played an important role in facilitating technological progress and leading the world into the modern economic regime. Moreover, quantitative research proves that institutions significantly impact socioeconomic performance around the globe.

Institutions and Economic Performance: What Can Be Explained

2010

Institutions are now widely believed to be important in explaining performance. In this paper, we analyse whether commonly used measures of institutions have any significant, measurable impact on performance, whether of countries or firms. We look at three 'levels' of institutions and associated conjectures. The first concerns whether the political system affects performance. The second concerns whether the business and investment environment affects the performance of countries and the third concerns whether perceived business constraints directly affect the performance of firms. In all instances, we find little evidence of a robust link between widely used measures of institutions and our indicators of performance. We consider why this might be the case and argue that mis-measurement, mis-specification, complexity and non-linearity are all relevant factors.

Preliminary conclusions on institutions and economic performance

Journal of Biotechnology, 2012

Using institutional indicators describing 122 countries, we conduct an exploratory study highlighting which institutional characteristics differ across countries with different levels of income and rates of growth. We describe a country's institutions by the degree of formalization of its regulations, the depersonalization of their implementation, and by the degree of control and intervention of the state. Our findings reveal that

Institutions and economic performance: A meta-regression analysis

European Journal of Political Economy, 2011

This meta-regression analysis investigates the effects of institutions on (macro)economic performance. This literature reveals a positive relationship that is conditional on heterogeneities with respect to model specifications, samples, datasets, observed timehorizons, and approaches to the potential endogeneity of institutions. The partial correlations between institutional and performance variables are particularly influenced by choice of dependent variable and treatment of institutional endogeneity. Standard tests suggest that there is an authentic empirical effect and reveal no evidence of publication bias. These findings are supported by separate investigation of primary studies with, respectively, outputgrowth and output-level as the dependent variable. Sub-sample investigations reveal an institutional effect on output growth in transition economies but a larger effect on output levels in other countries.

Institutions and Economic Performance: An Overview of Empirical Research with the Main Focus on Transition Economies

The New Institutional Economics integrates the theory of institutions into mainstream economics. Institutions are formally and informally the "rules of the game" in society. As such, institutions structure economic activity and influence its outcomes at both micro and macro levels. This paper reviews the empirical literature, focussing on its relevance to transitional economies. We conclude that institutions matter profoundly for economic growth and development. However, although empirical research has increased understanding of the role of institutions in the economy, many questions remain open, especially for transition economies. Knowledge gaps that invite further investigation include: transmission channels between institutions and national output; the issue of mutual endogeneity between institutions and economic growth; the structure and size of the institutional framework and its influence on economic performance; and the links between success in integration with the EU of transition economies, financial support from the EU and the quality of institutions.

Institutions, institutional change and economic performance

2009

North begins his book by stating that "institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction."(3) That being said North then proposes to examine institutions, changes in them, and their impact on economic performance over time.

Institutions and economic development: theory, policy and history

The article tries to advance our understanding of institutional economics by critically examining the currently dominant discourse on institutions and economic development. First, I argue that the discourse suffers from a number of theoretical problems – its neglect of the causality running from development to institutions, its inability to see the impossibility of a free market, and its belief that the freest market and the strongest protection of private property rights are best for economic development. Second, I point out that the supposed evidence showing the superiority of 'liberalized' institutions relies too much on cross-section econometric studies, which suffer from defective concepts, flawed measurements and heterogeneous samples. Finally, I argue that the currently dominant discourse on institutions and development has a poor understanding of changes in institutions themselves, which often makes it take unduly optimistic or pessimistic positions about the feasibility of institutional reform.

A Review of the Recent Literature on the Institutional Economics Analysis of the Long-Run Performance of Nations

Journal of Economic Surveys, 2016

This paper reviews the recent (post-2000) literature which assesses the importance of institutions as a factor determining crosscountry differences in growth rates or in the contemporary level of "prosperity". It first sketches how institutional economics has evolved. It then examines critically the methods of analysis employed in the recent literature. The paper finds that this literature has made a major contribution to the analysis of the causes of economic growth but the relative importance of institutions as a determinant of long-run growth and prosperity is still a wide open question.