Resource Curse or Not: A Question of Appropriability*

Whether natural resources are good or bad for a country's development are shown to depend on the interaction between institutional setting and, crucially, the types of resources possessed by the country. Some natural resources are, for economical and technical reasons, more likely to cause problems such as rent‐seeking and conflicts than others. This potential problem can, however, be countered by good institutional quality. In contrast to the traditional resource curse hypothesis, we show the impact of natural resources on economic growth to be non‐monotonic in institutional quality, and increasingly so for certain types of resources. In particular, countries rich in minerals are cursed only if they have low‐quality institutions, while the curse is reversed if institutions are sufficiently good. Furthermore, if countries are rich in diamonds and precious metals, these effects—both positive and negative—are larger.     

Institutions in the economy and some institutions of mainstream economics: From the late 1970s to the 2008 financial and economic crisis

This article proposes a conceptual and theoretical institutional approach to the relations between the economy and economics and uses it to examine, through a structured survey of the literature, the relations between institutions in the economy and the institutions of mainstream economics, macroeconomics, and financial economics, highlighting issues related to the financial and macroeconomic crisis and focusing on the United States from the late 1970s to 2008. Institutions are socially shared systems of rules of behavior or of thought. Some systems of mental and behavioral rules are socially shared among economic agents and policymakers in part because they are socially shared among academic economists. They may exert on economic agents and policymakers some of the same types of influence they have on economists. On the other hand, there are important limits to the influence of the institutions of economics outside academia, and institutions in the economy also influence the institutions of economics.     

Medical Nemesis

In addition to the material market, there is also a positional market in human society. The channel of social mobility — the institutional system that regulates the performance of individuals and groups in the positional market — is a critical dimension of the overall institutional foundation of economic growth because it underpins the incentive structure in the positional market. Understanding the interaction between the incentive structures in the material market and those in the positional market sheds new light upon economic history and some of the on-going "natural experiments" in economic development today. Most importantly, understanding the relationship between the positional market and economic growth makes it clear that states should strive to eliminate institutional discrimination because institutional discrimination is not only morally unjust but also economically costly.     

Is institutional improvement possible?

A substantial literature shows that economic prosperity is dependent on the quality of economic institutions. Countries with low-quality institutions remain poor while countries with high-quality institutions prosper. Improvement in institutional quality brings with it economic growth. Poor countries must improve their economic institutions to escape poverty; so, if a poor country’s institutional structure is unlikely to improve, that suggests dismal prospects for economic growth and an escape from poverty. An examination of institutional quality over 30 years indicates that countries with low-quality institutions have improved their institutional quality, which demonstrates that poor countries are not stuck with low-quality institutions. They can improve their institutions, and consequently, can generate economic growth and escape poverty.     

Engines of Growth in China: The Limits of Informal Institutions

Abstract:

Since the 1978 reforms, China has experienced rapid economic and social development. GDP growth has been in the double digits on average yearly, creating the fastest sustained economic growth recorded by a major economy in history. Not only did this transform the economy and society at large, China reached important milestones in terms of reducing poverty and creating prosperity in a short period of time. This article uses the conceptual framework of new institutional economics to examine China’s economic growth and how growth has been achieved largely by ‘informal institutions’ that are grounded in culture, customs, and private interactions that emerge spontaneously. The trajectory by which these informal institutions left their imprint on China’s complex economic landscape and how they can constrain future economic growth are also of central importance. After examining decentralization and risk management practices, property rights, and the legal system, we emphasize the importance of creating formal institutions necessary for long-term growth, most importantly innovation. Preliminary evidence shows total factor productivity is tapering off which may reflect the constraints of China’s institutional environment. This ought to be reversed if China is to enjoy long-term sustained growth.     

Against Decadence: The Work of Robert A. Brady (1901-63)

Research on institutional change has flourished ever since the debate on agency and structure has moved away from the previously uncompromising positions in which either agency or structure was emphasized. A conceptual compromise is sought here in a focus on the processes of institutionalization, which allows one to move beyond the idea that institutions are mere mental constructs or the point of view that behavior is the mere reproduction of institutional patterns. Contributing to an understanding of the processes of institutional change, this paper analyzes institutional change as instigated by tensions, triggered by agents’ discrepancies berween concrete institutional settings and the socio-economic values these are to represent. The Social Value Nexus that is presented introduces an emphasis on the perceived legitimacy of institutions. Describing (types of) tensions berween socio-cultural values and institutional settings, the paper explores how structure, agency and values interact in processes of institutional change.     

A Guide to Paradigmatic Self-Marginalization: Lessons for Post-Keynesian Economists

While many heterodox economists hope that the recent financial crisis will lead to paradigmatic change in economics, we argue that path-dependent processes and institutional factors within the economic community hinder such a change. Focusing on the citation behavior of economists in heterodox journals in general and in Post-Keynesian journals in particular, we discuss structural reasons—connected to positive feedback mechanisms within the institutional framework of the economics discipline—for the marginalization of heterodox economic thought.     

The double trap: Institutions and economic development

The empirical growth literature has established that institutional quality is a deep determinant of economic growth. We examine whether institutional quality in low income countries converges to the level witnessed in high income countries, or whether they are trapped in convergence clubs that stagnate or even deteriorate over time. Using the log-t-test suggested by Phillips and Sul (2007), we find evidence of multiple equilibria in institutional quality, with several countries stuck in poor quality institutions traps. We further find that per capita incomes of some of the developing countries are also stuck in low-level traps. Finally, using bivariate probit estimations, we establish that poor institutional traps are major determinants of low income traps. These results indicate that these countries are caught in a double trap where their incomes are stuck in low-level traps from which it is difficult to escape, because the institutions that enable growth are also stuck in low-quality traps.     

Permanency and Flexibility of Institutions: The Role of Decentralization in Chinese Economic Reforms

The purpose of this paper is to offer a Lachmannian analysis aimed at studying the coherence and the efficiency of reforms in China in terms of institutional change. The idea is that transition dynamics cannot be analyzed by reference to market criteria only; transition is, above all, a change in institutions. Every transition economy thus faces the problem of creating a new institutional framework which associates the co-ordination of activities by the market with the preservation of a centralized mechanism of resource allocation. We explain that, in China, this role is played by decentralization. Indeed, we demonstrate that Chinese economic reforms, of which the main institutional vector is decentralization, show the particularity of reconciling, within one single logic, the permanency of a well-established institutional order required for the co-ordination of individual plans, and the flexibility of institutions necessary for the move towards the market. We then defend the theory that both the success and the originality of Chinese economic reforms rest on their capacity to resolve the permanency-flexibility dilemma.     

Governance during Social Transformations: Challenges for Africa

The governance advice that is offered to Africa usually identifies a list of ‘good governance’ goals like stable property rights, a rule of law, low corruption and government accountability as preconditions for development. These goals are difficult to implement not only because they are expensive public goods but in addition their enforcement is typically at variance with powerful interests in the political settlements of developing countries. The historical evidence and much institutional theory suggests that during their social transformations successful developing countries had a different set of ‘developmental’ or ‘growth-enhancing’ governance capabilities that enabled their states to support critical property rights transformations and assist firms in acquiring and learning to use new technology. The institutions and policies they used differed because their political and institutional starting points were different. There are therefore no blueprints for Africa or anywhere else, but certainly the good governance menu is unrealistic. Rather African countries have to experiment and develop institutional and policy solutions that work in their context and which are appropriate for transforming property rights and accelerating technology adoption.