WHICH IINSTITUTIONS DETERMINE GROWTH? A Small Step towards more Practical Policy Advice
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Institutions are hot! The international development community has adopted this buzzword in its discourses and policies. There is ample literature pointing to the importance of institutions for economic development, and this paper is not to deny this irrefutable fact. In fact, this paper provides evidence that institutions impact economic performance through human capital, rather than directly. However, it questions the relevance of the empirical literature for policymakers, and tries to take the next step by asking which institutions are important to income and/or growth, by categorizing them into economic, political, legal and social institutions. The analysis teaches us that it is difficult to answer this question, but not because research would not be able to do so technically. Rather, the measures for institutions that are currently available are ambiguous outcome measures that all capture similar information and hardly contain any policy information. Disaggregating indices and using straightforward measures of institutional quality, which actually capture a norm instead of an outcome, can provide a small step towards more practical policy advice.