Авторы: 147 А Б В Г Д Е З И Й К Л М Н О П Р С Т У Ф Х Ц Ч Ш Щ Э Ю Я

Книги:  180 А Б В Г Д Е З И Й К Л М Н О П Р С Т У Ф Х Ц Ч Ш Щ Э Ю Я


загрузка...

Developing effective institutions

Clearly the major income differentials that we observe around the world have

a lot to do with differences in the quality of countries’ institutions and

economic policies as well as the quality of political leadership. This explains

the rapid growth witnessed in a subset of East Asian developing countries

since around 1960 and the relative stagnation of most of sub-Saharan Africa

over that same period. Many economists believe that the main reasons why

some countries progress and grow rapidly while others stagnate cannot be

found in the area of geography and factor endowments. Countries with poor

natural resources such as Japan, Taiwan and South Korea have experienced

‘miracle’ growth while many natural resource-abundant economies in sub-

Saharan Africa, such as Zaire (from 1997 the Democratic Republic of Congo),

have been growth ‘disasters’. Reynolds (1985) concludes that the single most

important explanatory variable of economic progress is the political organization

and the administrative competence of government (see Herbst, 2000).

Gray and McPherson (2001), in their analysis of the leadership factor in

African policy reform, conclude that ‘a large number of African countries,

perhaps the majority, have been ruled by individuals who had sufficient

power to implement reforms had they been so motivated. However, their

motivation led them in different directions.’ It is also the case that the political

and economic losers from the changes that economic development requires

will often act as barriers to progress (Acemoglu and Robinson, 2000a; Parente

and Prescott, 2000).

Given the importance of these issues, the recent political economy of

growth literature has focused on such factors as the relationship between

economic freedom, democracy and growth (for example Barro, 1996, 1999;

Clague et al., 1996; Minier, 1998; Benson Durham, 1999; Landman, 1999;

Olson, 2000); property rights and growth (for example North and Weingast,

1989; North, 1990; DeLong and Shleifer, 1993; Acemoglu and Johnson,

2003); ethnic heterogeneity, political conflict and growth (for example EastThe

renaissance of economic growth research 637

erly and Levine, 1997; Acemoglu and Robinson, 2000a, 2000b, 2000c, 2001,

2003; Collier, 2001; Easterly, 2001b); the impact of inequality and political

instability on growth (for example Alesina and Rodrik, 1994; Alesina et al.,

1996; Lee and Roemer, 1998; Barro, 2000; Glaeser et al., 2003; see also

Chapter 10); and various measures of social capability/social infrastructure/

social capital and growth, including trust (for example Knack and Keefer,

1995, 1997a, 1997b; Abramovitz and David, 1996; Landau et al., 1996; Hall

and Jones, 1997, 1999; Temple, 1998; Temple and Johnson, 1998; Paldam,

2000; Rose-Ackerman, 2001; Zak and Knack, 2001).

According to the World Bank (2002), there is a growing body of evidence

linking the quality of institutional development to economic growth and

efficiency across both time and space and there is now widespread acceptance

of the idea that ‘good’ institutions and incentive structures are an important

precondition for successful growth and development. Because economic history

is essentially about the performance of economies over long periods of

time, it has a significant contribution to make in helping growth theorists

improve their ability to develop a better analytical framework for understanding

long-run economic change (North and Thomas, 1973; North, 1981, 1989,

1990, 1994; Myles, 2000).

The story that emerges from economic history is one which shows that the

unsuccessful economies, in terms of achieving sustained growth of living

standards, are those that fail to produce a set of enforceable economic rules

of the game that promote economic progress. As North (1991) argues, the

‘central issue of economic history and of economic development is to account

for the evolution of political and economic institutions that create an

economic environment that induces increasing productivity’.

North (1991) defines institutions as ‘the humanly devised constraints that

structure political, economic and social interaction’. The constraining institutions

may be informal (customs, traditions, taboos, conventions, self-imposed

codes of conduct involving guilt and shame) and/or formal (laws, contract

enforcement, rules, constitutions, property rights). In an ideal world the informal

and formal institutions will complement each other. These institutions

provide a structure within which repeated human interaction can take place,

they support market transactions, they help to transmit information between

economic agents and they give people the incentives necessary to engage in

productive activities. History is ‘largely a story of institutional evolution’ and

effective institutions ‘raise the benefit of co-operative solutions or the costs

of defection’ (North, 1991).

A good example demonstrating the importance of institutions for sustained

economic growth is provided by the post-Second World War reconstruction of

Europe. As DeLong and Eichengreen (1993) argue, ‘the Marshall Plan

significantly sped western European growth by altering the environment in

which economic policy was made’ and by providing support to a recovery

strategy based on the restoration of a market-based economic system, together

with the necessary supporting institutions. In retrospect we now know that the

period 1950–73 turned out to be a ‘Golden Age’ of economic growth in the

‘mixed’ economies of Western Europe, and DeLong and Eichengreen conclude

that the Marshall plan was ‘history’s most successful structural adjustment

programme’. Eichengreen (1996) also extends the institutional based explanation

of why Europe was able to enjoy a ‘Golden Age’ of economic growth in

the 25-year period following the implementation of the Marshall Plan. European

economic growth during this quarter-century was faster than any period

either before or since (Maddison, 2001). According to Eichengreen, the foundation

for this ‘Golden Age’ was a set of domestic (the social market economy)

and international institutions (GATT, the development of free intra-European

trade, the Bretton Woods institutions) that ‘solved problems of commitment

and co-operation that would have otherwise hindered the resumption of growth’.

For individuals living in a typical rich OECD economy in the twenty-first

century it is easy to take most of these market-based institutions for granted

because they have evolved over such a long historical period. But the ‘trials

of transition’ witnessed in the former communist economies remind us just

how difficult it is to make market economies operate effectively without

having the necessary institutional infrastructure in place.

Evidence from ‘natural experiments’

One very important source of divergence in per capita incomes emphasized

by Fukuyama (1989, 1992), Olson (1996, 2000) and DeLong (2001) has

arisen because of political developments which have influenced the choice of

economic system and policies. Those countries which attempted to ‘develop’

behind the ‘Iron Curtain’ now have much lower income per capita than

countries which had a comparable income per capita in 1950 and followed

the capitalist path.

The fact that a large part of the globe was under communist rule in the twentieth

century is one major reason for the world’s divergence … depending on how you

count and how unlucky you are, 40 to 94 per cent of the potential material

prosperity of a country was annihilated if it happened to fall under communist rule

in the twentieth century. (DeLong, 2001)

The most obvious examples involve the comparative development experiences

of East and West Germany, North and South Korea, and China with

Taiwan/Singapore/Hong Kong. But comparisons between other neighbouring

countries seems reasonable, for example, comparisons between Russia and

Finland, Hungary and Austria, Greece and Bulgaria, Slovenia and Italy, and

Cambodia and Thailand reveal significant differences in living standards.

Of the examples mentioned above, the most dramatic ‘natural experiment’

has occurred in the Korean peninsula during the second half of the twentieth

century. Following the surrender of Japan in August 1945, Korea was divided

at the 38th parallel into two zones of occupation, with armed forces from the

Soviet Union occupying the ‘North’ and American armed forces occupying

the ‘South’. In the summer of 1948, following the May elections, the American

zone of occupation became the Republic of Korea, and in September

1948 the northern zone became formally known as the Democratic People’s

Republic of North Korea. Both ‘Koreas’ claimed full political jurisdiction

over the entire Korean peninsula and this disagreement led to the Korean

War, which lasted from June 1950 until the armistice of July 1953. Since then

the 38th parallel has remained the dividing line between the two Koreas, with

the ‘communist North’ adopting a centrally planned economic strategy and

the ‘capitalist South’ putting its faith in a capitalist mixed economy. As the

data in Tables 11.4 and 11.5 make clear, the impact of these choices on living

standards in the two Koreas, made some 50 years ago, could not have been

more dramatic. As Acemoglu (2003b) notes, ‘a distinguishing feature of

Korea before separation was its ethnic, linguistic and economic homogeneity.

The north and south are inhabited by essentially the same people with the

Table 11.4 A tale of two Koreas

Indicator Population GDP GDP per Population GDP GDP per

(’000) PPP $ capita (’000) PPP $ capita

millions PPP $ millions PPP $

Year North North North South South South

Korea Korea Korea Korea Korea Korea

1950 9 471 7 293 770 20 846 16 045 770

1955 8 839 9 361 1 054 21 552 22 708 1 054

1960 10 392 11 483 1 105 24 784 27 398 1 105

1965 11 869 15 370 1 295 28 705 37 166 1 295

1970 13 912 27 184 1 954 32 241 62 988 1 954

1975 15 801 44 891 2 841 35 281 111 548 3 162

1980 17 114 48 621 2 841 38 124 156 846 4 114

1985 18 481 52 505 2 841 40 806 231 386 5 670

1990 20 019 56 874 2 841 42 869 373 150 8 704

1995 21 553 32 758 1 520 45 081 534 517 11 873

1998 21 234 25 131 1 183 46 430 564 211 12 152

Source: Adapted from Maddison (2001).

Table 11.5 Growth rates of per capita GDP (%): the two Koreas

1950–73 1973–98

North Korea 5.84 –3.44

South Korea 5.84 5.99

Source: Adapted from Maddison (2001).

same culture, and there were only minor differences between the two areas.’

Therefore, this natural experiment, of dividing the Korean peninsula into two

countries, each distinguished by very different policies and institutions, ‘gives

a clear example of how, despite the very similar economic conditions, political

leaders often chose very different policies with very different outcomes’.

As Maddison’s (2001) data indicate, per capita GDP in North Korea in

1950 was $770 (at 1990 international prices). By 1998 this had only risen to

$1183. In sharp contrast, although per capita income in South Korea in 1950

was also $770, by 1998 it had risen to $12 152! This again demonstrates the

powerful effect that differential growth rates can have on the relative living

standards of two countries. While North Korean per capita economic growth

during the 1950–73 period was initially impressive (5.84 per cent per annum),

during the 1973–98 period the rate of growth collapsed to minus 3.44

per cent. During the 1950–73 period South Korea’s growth rate was also 5.84

per cent. However, during the years 1973–98 South Korea’s per capita growth

rate increased to 5.99 per cent. By 1999, World Bank (2002) data indicate

that the 47 million people living in the South had a life expectancy of 73

whereas for the 23.6 million people living in the North, life expectancy was

60 and in recent years North Korea has been experiencing a famine (Noland

et al., 2001).

These ‘natural experiments’ show that where national borders also mark

the boundaries of public policies and institutions, easily observable differentials

in economic performance emerge (Fukuyama, 1992; Olson, 1996). In

DeLong’s (1992) view, ‘over the course of the twentieth century communism

has been a major factor making for divergence: making nations that were

relatively poor poorer even as rich industrial economies have grown richer’.

Democracy, the quality of governance and growth

Does growth promote democracy or does democracy promote growth? Recent

research into the link between democracy, dictatorship and growth has

produced support for both of the above linkages. Barro (1996, 1997, 1999)

provides evidence in support of the Lipset (1959) hypothesis which suggests

that prosperity promotes democracy. Barro’s research confirms this hypothThe

renaissance of economic growth research 641

esis as a ‘strong empirical regularity’. Since the empirical evidence also

supports the hypothesis that economic freedom promotes prosperity, Barro

concludes that policies that promote economic freedom will also promote

greater democracy through the Lipset prosperity effect. It is certainly indisputable

that there has never been a liberal democracy (free and regular

competitive elections) where there is an absence of economic freedom (see

Friedman, 1962; Kornai, 2000; Snowdon 2003b).

Bhagwati’s (1995) essay on democracy rejects an earlier popular view

highlighted in his 1966 book on The Economics of Underdeveloped Countries

that developing countries may face a ‘cruel dilemma’ in that they must

somehow choose between economic development or democracy. During the

1960s democracy was often portrayed as a luxury that poor countries could

not afford. It was often argued that to achieve rapid growth requires tough

decisions and that in turn necessitates firm political leadership free from

democratic constraints. The balance of opinion has now moved away from

accepting as inevitable this ‘Cruel Dilemma Thesis’.

While prosperity undoubtedly sows the seeds of democracy, the idea that a

stable democracy is good for sustained growth has also been receiving increasing

support in the literature. If property rights are the key to reducing

transaction costs and the promotion of specialization and trade, then it should

be no surprise to observe that ‘almost all of the countries that have enjoyed

good economic performance across generations are countries that have stable

democratic governments’ (Olson, 2000; Rodrik, 2000). Whereas good governance

and economic prosperity are good bedfellows, autocrats, who are

also invariably kleptomaniacs, are a high-risk form of investment. As Easterly

(2001a) notes, ‘governments can kill growth’.

For most of human history the vast majority of the peoples of the world

have been governed by what Mancur Olson (1993, 2000) calls ‘roving bandits’

and ‘stationary bandits’. History provides incontrovertible evidence that

benevolent despots are a rare breed. Roving bandits (warlords) have little

interest in promoting the well-being of the people living within their domain.

A territory dominated by competing roving bandits represents a situation of

pure anarchy and any form of sustainable economic development is impossible.

With no secure property rights there is little incentive for people to

produce any more than is necessary for their survival since any surplus will

be expropriated by force. Stationary bandits, however, can extract more tax

revenue from the territory they dominate if a stable and productive economy

can be encouraged and maintained. In this situation despots have an incentive

to provide key public goods such as law and order. But property rights can

never be fully secure under autocratic forms of governance because the

discretionary powers of the autocrat create a time-inconsistency problem.

That is, the autocrat will always have a credibility problem. History shows

that absolutist princes always find it difficult to establish stable dynasties, and

this uncertainty relating to succession prevents autocrats from taking a longerterm

view of the economy. For example, the monarchy in England between

the rule of William the Conqueror (1066) and the ‘Glorious Revolution’

(1688) was plagued by repeated crises of succession (for example the ‘Wars

of the Roses’). Only in a secure democracy, where representative government

is accountable and respectful of individual rights, can we expect to observe

an environment created that is conducive to lasting property rights (Fukuyama,

1989, 1992).

Acemoglu’s recent research highlights the importance of ‘political barriers

to development’. This work focuses on attitudes to change in hierarchical

societies. Economists recognize that economic growth is a necessary condition

for the elimination of poverty and sustainable increases in living standards.

Furthermore, technological change and innovation are key factors in promoting

growth. So why do political élites deliberately block the adoption of

institutions and policies that would help to eliminate economic backwardness?

Acemoglu and Robinson (2000a, 2000b, 2000c, 2001, 2003, 2005)

argue that superior institutions and technologies are resisted because they

may reduce the political power of the elite. Moreover, the absence of a

‘strong institution’ allows autocratic rulers to ‘adopt political strategies which

are highly effective at diffusing any opposition to their regime … the

kleptocratic ruler intensifies the collective action problem and destroys the

coalition against him by bribing the pivotal groups’ (Acemoglu et al., 2003b).

Often financed by natural resource abundance and foreign aid, kleptocrats

follow an effective power sustaining strategy of ‘divide and rule’. In the case

of Zaire, with over 200 ethnic groups, Mobutu was able to follow such a

strategy from 1965 until he was overthrown in 1997. Acemoglu’s research

reinforces the conclusions of Easterly and Levine (1997), who find that

ethnic diversity in Africa reduces the rate of economic growth (see next

section).

The general thesis advocated by North and Olson is also confirmed by

DeLong and Shleifer (1993), who show that those cities in medieval Europe

that were under more democratic forms of government were much more

productive than those under the autocratic rule of ‘princes’. The incompatibility

of despotism with sustainable economic development arises because of

the insecurity of property rights in environments where there are no constitutional

restrictions on an autocratic ruler. DeLong and Shleifer assume that the

size of urban populations is a useful proxy for commercial prosperity and

‘use the number and sizes of large pre-industrial cities as an index of economic

activity, and changes in the number of cities and the sizes of urban

population as indicators of economic growth’. Their city data show how

between the years 1000 and 1500, the centre of economic gravity in Europe

moved steadily northward. Although in the year 1000 Western Europe was a

‘backwater’ in terms of urban development, by 1800 it was established as the

most prosperous and economically advanced region of the world. While

London is ranked as the 25th largest European city at the beginning of the

thirteenth century, by 1650 it had risen to second place (after Paris), and by

1800 London was first. DeLong and Shleifer argue that security of property

can be thought of as a form of lower taxation, with the difference between

absolutist and non-absolutist governments showing up as different tax rates

on private property. It has also been argued by Douglass North that the

establishment of a credible and sustainable commitment to the security of

property rights in England required the establishment of parliamentary supremacy

over the crown. This was achieved following the ‘Glorious Revolution’

of 1688 which facilitated the gradual establishment of economic institutions

conducive to increasing security in property rights (North and Weingast,

1989; North, 1990). The contrasting economic fortunes of the North and

South American continents also bear testimony to the consequences of divergent

institutional paths for political and economic performance (Sokoloff and

Engerman, 2000; Acemoglu et al., 2001, 2002a; Khan and Sokoloff, 2001).

The failure in many countries to develop good governance has had serious,

often drastic, economic and political consequences. The case for democracy

rests very much on how regular elections and a free press and media act as

important mechanisms that increase the accountability of politicians. In a

principal–agent model, the scope for rent-seeking activities by politicians,

who have potential access to huge resources, is greatly increased if the

citizens of a country lack information and are denied the opportunity to hold

politicians accountable via regular and guaranteed competitive elections (see

Adsera et al., 2003).

In sum, we think that Winston Churchill had it right when he made his

famous statement defending democracy in the House of Commons (11 November

1947):

No one pretends that democracy is perfect or all wise. Indeed it has been said that

democracy is the worst form of government except for all those other forms that

have been tried from time to time.

Rent seeking, trust, corruption and growth

In order to foster high levels of output per worker, social institutions must be

developed which protect the output of individual productive units from diversion.

Countries with perverse infrastructure, such as a corrupt bureaucracy,

generate rent-seeking activities devoted to the diversion of resources rather

than productive activities such as capital accumulation, skills acquisition, and

the development of new goods and production techniques (Murphy et al.,

1993; Mauro, 1995). In an environment of weak law and contract enforcement,

poor protection of property rights, confiscatory taxation and widespread

corruption, unproductive profit- (rent-) seeking activities will become endemic

and cause immense damage to innovation and other growth-enhancing

activities (Tanzi, 1998).

There is abundant evidence that economic incentives can influence the

productivity and interests of talented individuals who potentially can make a

huge contribution to the accumulation of wealth. For individuals or groups of

individuals to have an incentive to adopt more advanced technology or engage

in the creation of new ideas requires an institutional framework which

allows for an adequate rate of return. In an interesting development of

Schumpeter’s theory of entrepreneurship Baumol (1990) has shown that by

extending the model, so that it encompasses the ‘allocation’ of entrepreneurial

skills, the power of the model to yield policy insights is greatly

enhanced. In Schumpeter’s (1934) analysis he identifies five forms of entrepreneurial

activity in addition to those related to fostering improvements in

technology, namely:

1. the introduction of new goods and/or new quality of an existing good;

2. the introduction of a new production method;

3. the opening of a new market;

4. the ‘conquest’ of a new source of supply of raw materials;

5. the new organization of any industry.

Baumol (1990) argues that Schumpeter’s list is deficient and in need of

extension to include:

6. ‘innovative acts of technology transfer that take advantage of opportunities

to introduce already available technology to geographical locales

whose suitability for the purpose had previously gone unrecognised or at

least unused’;

7. ‘innovations in rent seeking procedures’.

This last category is of crucial importance because it includes what Baumol

calls ‘acts of unproductive entrepreneurship’. Given that Baumol defines

entrepreneurs as ‘persons who are ingenious and creative in finding ways that

add to their own wealth, power, and prestige’, it follows that one of the main

determinants of the allocation of entrepreneurial talent at a particular time

and place will be the ‘prevailing rules of the game that govern the payoff of

one entrepreneurial activity relative to another’. Talented individuals are naturally

attracted to activities with the highest private returns. There is no guarantee

that such activities will always have the highest social rate of return. ThereThe

renaissance of economic growth research 645

fore entrepreneurs can be ‘unproductive’, even ‘destructive’, as well as productive

from society’s point of view. While in some economies talented

people become conventional business entrepreneurs, in others talent is attracted

to the government bureaucracy, the armed forces, religion, crime and

other rent-seeking activities. Since the ‘rules of the game’ can and do change,

we can expect to see a reallocation of entrepreneurial talent appropriate to

any new environment. The forms of entrepreneurial behaviour that we observe

will obviously change over historical time and across geographical

space. Therefore the allocation of entrepreneurship between productive, unproductive

and destructive activities cannot but have a ‘profound effect’ on

the innovativeness, and hence growth, of any economy. For example, Landes

(1969) suggests that the reason why the Industrial Revolution began in England

rather than in France is linked to the allocation of talent. Any country

interested in growth must ensure that its most able people are allocated to the

productive sectors of the economy. Murphy et al. (1991) argue that a possible

reason for the productivity growth slowdown in the US economy during the

1970s could be the misallocation of human capital because talented individuals

have increasingly become rent seekers (for example lawyers) rather than

producers (for example engineers). They conclude that the ‘allocation of

talented people to entrepreneurship is good for growth and their allocation to

rent seeking is bad for growth’. In Baumol’s view the predominant form of

unproductive entrepreneurship in economies today is rent seeking, and the

prevailing laws, regulations and structure of financial incentives will inevitably

have a major effect on the ‘allocation of talent’.

These insights suggest that a fruitful line of research is to focus on crosscountry

differences in incentive structures facing entrepreneurs with respect

to encouragement to create new enterprises, adopt new technologies and

thereby increase growth. If barriers to productive entrepreneurship are deliberately

created by specific groups who have a clear vested interest in the

status quo, then the task of economists is to offer policy advice about how to

design and establish institutions that minimize this ‘unproductive’ behaviour.

When an environment is created that is conducive to the adoption of new

ideas by entrepreneurs, a type of capital is generated which economists have

referred to as ‘organizational’ or ‘business’ capital, which exists independently

of the entrepreneur. Countries that lack organizational capital will remain

unattractive to foreign direct investment.

Trust between economic agents is a crucial determinant of the cost of

transactions. This idea has a long pedigree (Fukuyama, 1995). For example,

John Stuart Mill (1848) noted that there are counties in Europe

where the most serious impediment to conducting business concerns on a large

scale, is the rarity of persons who are supposed fit to be trusted with the receipt

and expenditure of large sums of money … The advantage to mankind of being

able to trust one another, penetrates into every crevice and cranny of human life:

the economical is perhaps the smallest part of it, yet even this is incalculable.

In a recent paper, Zak and Knack (2001) have taken up this insight and show

that the extent of trust in an economy ‘significantly’ influences growth rates,

and that ‘high trust societies produce more output than low trust societies’. In

economies where there is a high level of trust between transactors, the rate of

investment and economic growth is likely to be higher than in low-trust

environments. This finding supports the earlier empirical research of Knack

and Keefer (1995, 1997a, 1997b), who find a positive relationship between

trust and growth for a sample of 29 market economies. Zak and Knack argue

that trust is lower in countries where: (i) there is an absence of formal (laws,

contract enforcement) and informal (ostracism, guilt, loss of reputation) mechanisms

and institutions which deter and punish cheaters and constrain

opportunistic behaviour; (ii) population heterogeneity (ethnic diversity) is

greater; and (iii) inequalities are more pervasive. Easterly and Levine (1997)

find that ethnic diversity in Africa reduces the rate of economic growth since

diverse groups find it more difficult to reach cooperative solutions and scarce

resources are wasted because of continuous distributional struggles, of which

civil war, ‘ethnic cleansing’ and genocide are the most extreme manifestations

(Bosnia, Rwanda, Kosovo, Afghanistan). Collier’s (2001) research

suggests that ethnically diverse societies are ‘peculiarly ill suited to dictatorship’

and that providing there is not ‘ethnic dominance’ in the political

system, then democratic institutions can greatly reduce the potential adverse

economic impact of ethnic diversity and the wars of attrition that can take

place between competing groups. Easterly (2001b) argues that formal institutions

that protect minorities and guarantee freedom from expropriation and

contract repudiation can ‘constrain the amount of damage that one ethnic

group could do to another’. In Easterly’s framework of analysis the following

relationship holds:

Ethnic conflict = f (ethnic diversity, institutional quality)

Easterly’s research findings show that ethnic diversity does not lower growth

or result in worse economic policies providing that good institutions are in

place (Snowdon, 2003a). Good institutions also ‘lower the risk of wars and

genocides that might otherwise result from ethnic fractionalisation’. Rodrik

(1999a, 1999b, 2000) has also shown how societies with deep social divisions

and a lack of democratic institutions of conflict management are highly

vulnerable to exogenous economic shocks (see also Alesina and Rodrik,

1994). The adverse effect of an external shock (S) on economic growth is the

bigger the greater the latent social conflict (LSC) and the weaker are a

society’s institutions of conflict management (ICM). Rodrik’s hypothesis can

be captured by the following relationship:

Δ growth = – S(LSC/ICM)

Rodrik (1999a) uses this framework to explain the numerous ‘growth collapses’

that occurred across the world economy after the economic shocks of

the 1970s. In his empirical analysis countries with democratic and high-quality

government institutions demonstrated better macroeconomic management and

as a result experienced less volatility in their growth rates than countries with

weak institutions of conflict management.