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Stranger than Fiction? Institutions and economic development.

Article Excerpt
Mainstream economists used to treat institutions as mere 'details' that gets in the way of good economics. Then from the mid-1990s, everyone, including the IMF and the World Bank, suddenly started to emphasize the role of institutions in economic development. There are a few reasons behind this rather dramatic change. First, the institution-free technocratic reform programmes of the 1980s have almost universally failed. Second, a number of devastating large-scale financial crises in developing countries around the turn of the century have prompted debates on the need for reforming financial and other institutions in order to prevent and deal with such crises. Third, there have been increasing attempts by the developed countries to introduce 'global-standard' institutions to developing countries. Fourth, there have been some important theoretical developments in institutional economics--both orthodox and heterodox.

Stranger than Fiction?

Despite the heightened interests in institutions, there are still some important gaps in our understanding. First of all, we still do not know what institutions in exactly which forms are useful for economic development in which contexts. For example, everyone may agree that a 'good' property rights system is essential for economic development, but there is no agreement on what a 'good' property rights system is. Second, even when we can identify a particular...

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