Growth_Institutions_IMF

Growth_Institutions_IMF - CHAPTER III GROWTH AND...

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T he importance of institutions for eco- nomic development and growth has long been understood—emphasized, for example, in the writings of Adam Smith and, more recently, David Landes (1998), and recognized in the 1993 Nobel Prize awarded to Douglass North. In the past few years, however, there has been a resurgence of interest in this subject, including research into the sources of institutional differences across countries, the channels through which institutions may affect economic performance, and the quantitative importance of these links. Motivating much of this work is the renewed attention to the enormous cross-country differ- ences in incomes (Table 3.1). Not only are the extremes of this global income distribution striking—GDP per capita ranging from about $100 a year in Ethiopia, for example, to over $43,000 in Switzerland—but so also is the uneven dispersion of incomes. It is notable, for example, how few countries have what could be viewed as an “intermediate” level of income, between about $6,000 and $16,000 per capita, and how many—including most of sub- Saharan Africa—have incomes of well under $1,000 per capita. Furthermore, while subse- quent improvements in macroeconomic policies may have helped reverse the overall stagnation of per capita incomes among developing economies that set in early in the 1980s, these countries continue to face large and persistent income gaps relative to advanced economies (Figure 3.1). In this context, the observation that income differences appear closely correlated with indica- tors of institutional quality has attracted substan- 95 CHAPTER III GROWTH AND INSTITUTIONS Note: The main authors of this chapter are Maitland MacFarlan (lead), Hali Edison, and Nicola Spatafora, with consultancy support from Ross Levine. Bennett Sutton provided able research assistance. 1960 65 70 75 80 85 90 95 1000 2000 3000 5000 10000 20000 30000 Figure 3.1. Growth and Policies in Selected Advanced and Developing Economies Most developing economies have experienced an improvement in their policy environment over recent years, particularly trade openness. However, there remains a huge income gap compared with advanced economies. Real GDP per capita (dollars per capita; logarithmic scale) Sources: Sachs and Warner (1995a); World Bank, World Development Indicators (2002); and IMF staff estimates. There are 25 countries in the selected advanced economies group and 69 in the developing group. See Appendix 3.1 for composition of groups. Arithmetic mean of inflation for advanced economies; median for developing economies. The trade openness measure is the percent of years since 1960 that are classified as open. For details, see Sachs and Warner (1995a). Gross enrollment in secondary school programs in percent of total secondary school age population. Values larger than 100 are explained by enrollees who are not of secondary school age, such as enrollees in some adult education programs.
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This note was uploaded on 02/27/2011 for the course ECONOMICS 201 taught by Professor P during the Spring '11 term at Columbia College.

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Growth_Institutions_IMF - CHAPTER III GROWTH AND...

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