Impact Of Informal Institutions On Economic Growth And Development (original) (raw)
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Formal and Informal Institutions and Development
World Development, 2010
Our paper presents a critical review of the literature on institutional change and the role of institutions in economic development. We discuss the roles and interrelationships of formal and informal institutions and introduce a collection of papers addressing this topic in a variety of development settings.
Institutions and Economic Development: Informal Economy in Algeria
2016
Since 1990, Algeria has implemented several economic reforms in order to improve the performance of the economy, and thus reach high growth levels. However, most of these reforms were not accomplished or even worse had led to other economic and social problems, such as unemployment, poverty, smuggling, tax evasion, etc. All these activities are gathered in one inclusive concept, which is the informal economy. Moreover, among the main drivers and the causes of this economy are the state formal regulations on economic activities. But what are of paramount importance are informal institutions, such as informal rules and social norms that are deep-rooted in the society’s culture and are influenced by historical patterns, and thus take too much time to be changed. The emphasis of this paper will be on the impact of informal institutions on economic outcomes, and that the government should take into account social norms as well as the formal institutions in order to reduce the costs of the transition process toward the market economy, such as the rising size of informal activities, etc.
Essays on Institutions and Economic Growth in Developing Countries
2012
This thesis focuses on the institutions-growth nexus in the developing countries from East Asia, Africa and Latin America. It comprises of three distinct chapters with specific interests. The first chapter investigates unique economic development of the East Asian countries in the past two decades which is, to my knowledge, still lacking empirical study particularly for the period after the Asian financial crisis. The second chapter explains the growth-effect of social capital (informal institutions) and the channel of the effect using panel data analysis which hitherto has been very limited in the literature. Finally, the third chapter tests spatial spillover effect of institutions towards growth by utilizing an unconventional weight matrix based on institutional distance, arguably the first of its kind. In general, this thesis finds empirical support for the hypothesis "institutions matter" for growth in the developing countries being studied. The first chapter finds evidence that institutions determine growth via the factor productivity channel. In all developing countries, secure property rights and bureaucratic efficiency affect growth significantly, whereas in the East Asian countries, political institutions, in addition to both qualities, also do. During the period of high growth in the East Asian region, secure property rights and autocratic government are found to strongly determine growth, but in the post-crisis period no clear evidence on the institutional importance. The second chapter shows that the generalized trust variable widely used to reflect social capital is not suitable in panel analysis. Using alternative measures of social capital, however, this chapter finds empirical evidence that social capital significantly determines growth in developing countries, and its indirect effect running via the property rights channel is essentially larger than its direct effect. The third chapter finds that institutions spatially affect growth via an indirect route, i.e. good institutions in a country lead to economic improvement in that country and generate effects on the neighboring countries' growth. This chapter also shows that countries with similar political institutional settings have an increased spatial dependence and converge to similar levels of growth. v ACKNOWLEDGEMENTS First and foremost, all praises be to Allah SWT for without His blessings I would never be able to complete this study. He is the source of strength I turn to in times of difficulties. He is the source of light I look for when I am in darkness. May His name be exalted and glorified. My deepest gratitude goes to my supervisor, Professor Stephen G. Hall, who has been exceptionally kind, understanding and resourceful in guiding and supporting me throughout this study. His valuable comments, suggestions and guidance have made this research a successful one. I also would like to thank Professor Uma S. Kambhampati from University of Reading, UK, and Dr. Dimitrios Varvarigos for their helpful comments and suggestions for revision. My sincere appreciation goes to Majlis Amanah Rakyat (MARA) for the sponsorship of this study, to Department of Economics, University of Leicester for the financial assistance via Graduate Teaching Assistant scheme and for the purchase of ICRG institutional dataset, and to Universiti Teknologi MARA (UiTM) for the study leave. I would like to thank the academic and support staff of Department of Economics, Graduate Office, the Library and the IT Services of University of Leicester. I also would like to thank my PhD colleagues for the assistance and friendship. I owe my deepest gratitude to my wife, Noor Asmin Mohamad Khassim, who has been steadfastly by my side, showing remarkable strength and patience in our times of difficulties, and providing me with unending love, support and prayers throughout this journey. To my children Muammar, Ayman and Mawaddah, I owe them quality times together and would like to thank them for their patience and for bringing me the comfort and joy to behold. I extend my gratefulness to my father Ahmad Yusuf, my parents-in-law, Mohamad Khassim Ibrahim and Rahmah Ahmad, and to my family members for their thoughts, love and prayers. Not forgetting to all Masleics friends, and brothers and sisters in Islam in the UK and Malaysia, I would like to thank them for the kindness, thoughts and prayers. vi
INSTITUTIONS AS ENABLING CONSTRAINTS. A NOTE ON SOCIAL NORMS, SOCIAL CHANGE AND ECONOMIC DEvELOPMENT
Economics and Law, 2014
Both formal and informal institutions are usually perceived as constraints that structure and limit human behavior. This is understandable when we use them as an addition to neoclassical economics and as an attempt to overcome its deficiencies. Yet institutions also enable behavior which would otherwise probably be inexistent. This paper aims to highlight the enabling feature of institutions and briefly recognizes selected consequences of it. We argue (1) that because institutional arrangements cause specific distribution results thus the process of institutional change is virtually infinite and does not have to lead to socially optimal effects and (2) that informal institutions (social norms) have today important explanatory and creative power for the existing social order and economic development. We conclude by suggesting that more inter-disciplinary approach to economics may contribute to our better understanding of socioeconomic reality and indicate promising threads of current research. JEL Classification: D01, D02, H10 Czech S., Institutions as enabling constraints. A note on social norms, social change and economic development, "Ekonomia i Prawo.
Institutions, Development and Economic Growth
Comparative Economic Studies, 2008
While economic theory has traditionally focused on mostly physical and human capital and technology to explain economic growth, increased attention has been given to the institutional requirements for development. 'Failed transition experiments and financial crises in the 1990s revealed that even the basic prerequisites for development are incapable of delivering desired living standards in the absence of functioning institutions that support and enable economic incentives', write Theo Eicher and Cecilia Garcia-Penalosa in the introduction to this timely volume. It is a collection of papers from the 2004 CESifo Venice Summer Institute on Institutions and Growth, supported by the Centre of Economic Studies at Ludwig-Maximilians-University, Munich, and the Ifo Institute of Economic Research. Up to now economists have not been able to adequately demonstrate how institutions affect the large and unexplained differences in per capita incomes across the world. Many investigators have been trying to find out appropriate measures of institutions and how these institutions influence growth and development. In his chapter, 'On Institutions and Growth', Philippe Aghion develops an endogenous growth model with quality-improving innovations to determine the relationship between institutions, institutional change, and economic growth. According to the results he derives, financial development is the main determinant of an economy's ability to move growth rates and/or GDP per capita towards the technological frontier. 'Appropriate institutions' or policy designs affect productivity growth depending on the country's or sector's distance from the technological frontier. A country's distance from the technological frontier also affects the type of organisations in the economy. Academics have comparative advantage in the early stages of research, while private research has a comparative advantage in later stages. In a second chapter, Costas Azariadis and David de la Croix investigate the medium-and long-term impact of credit reform on the growth and distribution of income in a lifecycle economy with agents who differ in their ability to acquire human capital. The goal is to explain why slow implementation of reforms and liberalisation of financial markets could be
The paper tries to improve our understanding on the role of institutions in development by critically examining the current orthodox discourse on institutions and highlighting some of its key problems. After discussing some definitional problems, the chapter examines a number of problems in the orthodox literature arising from the widespread failure to distinguish between the forms and the functions of institution. Then it critically examines the excessive emphasis on property rights in the orthodox literature. Finally, it discusses a number of problems that arise from the simplistic view on institutional change that underlies the orthodox view on institutional persistence.
An Empirical Investigation of the Impact of Institutions on Economic Growth
International Review of Management and Business Research, 2021
This paper explores the impact of institutions on economic growth, measured in terms of Gross Domestic Product (GDP) per capita. A wide range of economic, non-economic, social, environmental and political factors contribute to economic growth and prosperity. Institutions are discussed as a range of array of regulatory and accountability mechanisms, beyond the boundaries of market functioning. This paper takes composite values of democracy index, vested interests, accountability, human rights and freedom of association and uses it as a proxy for institutions. A range of theoretical and empirical evidence, in addition to panel data analysis indicates positive role of institutions in economic growth.