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Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions

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  • Martin Paldam
  • Erich Gundlach

    (School of Economics and Management, University of Aarhus, Denmark)

Abstract

The Grand Transition (GT) view claims that economic development is causal to institutional development, and that many institutional changes can be understood as tran¬sitions occurring at roughly the same level (zones) of development. The Primacy of Insti¬tu¬tions (PoI) view claims that economic develop¬ment is a consequence of an exogenous selection of institutions. Our survey of the empirical evidence and our own estimates reveal that it is easy to find con- vincing evidence supporting either of the two views. Property rights do affect development as suggested by the PoI. However, democracy is mainly an effect of develop¬ment as suggested by the GT. We conclude that the empirical results are far too mixed to allow for a robust assess- ment that one of the two views is true and the other false. This finding implies that focusing on institutional development is unlikely to be successful as the key strategy for the economic development of poor countries.

Suggested Citation

  • Martin Paldam & Erich Gundlach, 2007. "Two Views on Institutions and Development: The Grand Transition vs the Primacy of Institutions," Economics Working Papers 2007-02, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2007-02
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    More about this item

    Keywords

    Grand transition; primacy of institutions; democracy; corruption; development;
    All these keywords.

    JEL classification:

    • B25 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Historical; Institutional; Evolutionary; Austrian; Stockholm School
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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