Pro-poor growth

Growth and institutions

How should we interpret the strong correlation between good governance and higher income levels? The three texts below provide a good starting point to a large topic area.

Aron, J., 2000, ‘Growth and Institutions: A review of the Evidence’, The World Bank Research Observer, 15(1), pp.99-135
What is the evidence for a link between institutions and economic growth across countries and over time? This paper, prepared for the 1997 World Development Report, reviews the economic literature that tries to link quantitative measures of institutions with growth of gross domestic product. It concludes that the evidence does suggest a link between the quality of institutions and investment and growth, but that the evidence is by no means robust.
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World Bank, 2002, ‘Building Institutions: Complement, Innovate, Connect, and Compete’, in Building Institutions for Markets: World Development Report 2002, World Bank, Washington
How do you build effective institutions that support growth and poverty reduction? This chapter from the 2002 World Development Report sets out a diagnostic framework for building effective institutions. It argues that improvements in living standards and in the lives of poor people depend on institutions that support markets and poor people's access to them.
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Rodrik, D., 2003 ‘Introduction’ in In Search of Prosperity – Analytical Narratives on Economic Growth, ed. D. Rodrik, Princeton University Press, Princeton
Why do some countries manage to sustain long periods of economic growth, while others do not? This chapter introduces a collection of case studies charting the economic narratives of selected countries and seeks to explain their success or failure. It argues that country narratives, informed by growth theory and cross-national evidence, can be useful in developing contingent hypotheses for different countries.
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The following texts examine the causal relationships between good governance and higher income levels.

Resnick, D. and Birner, R., 2006, ‘Does Good Governance Contribute to Pro-Poor Growth?: A Review of the Evidence from Cross-Country Studies’, DSCD Discussion Paper. International Food Policy Research Institute, Washington
Does good governance lead to poverty reduction? What is the relationship between good governance and pro-poor growth? This paper by the International Food Policy Research Institute (IFPRI) reviews the concepts of good governance and pro-poor growth and develops a conceptual framework to analyse cross-country studies that examine the links between the two. This assessment finds that there is no clear relationship between governance and pro-poor growth.
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Chang, H. and Evan, P., 2005, ‘The Role of Institutions in Economic Change’, in Reimagining Growth: Towards a Renewal of Development Theory, eds. S. De Paula and G. Dymski, Zed, London, pp. 99-129
Mainstream economic thinking tends to avoid the subject of institutions, viewing them simply as a constraint on free markets. This book chapter argues that institutions play a significant role in economic change and challenges the ‘thin’ view of institutions within mainstream economics. It advances an alternative approach based on a ‘thick’ view of institutions, which recognises the key role of culture and ideas, and the constitutive role of institutions in shaping the values and world views of groups and individuals.
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Burnside, C. and Dollar, D. 2004., ‘Aid, Policies, and Growth: Revisiting the Evidence’, Policy Research Working Paper 3251, The World Bank, Washington
Aid accelerates growth in developing countries with sound institutions and policies, but has less or no effect in countries with poor institutions and policies. Evidence has supported this theory and a growing trend toward greater ‘selectivity’ – channelling relatively more aid resources to poor countries with reasonably good institutions and policies, has been recognised. However these findings have been disputed. This World Bank working paper revisits the relationship between aid and growth using a new data set focusing on the 1990s.
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Rodrik, D., Subramanian, A. and Trebbi, F., 2002, 'Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development', Center for International Development Working Paper No. 97, Harvard University, Harvard
Average income levels in the world’s richest and poorest nations differ by a factor of more than 100. What accounts for these differences, and what can we do to reduce them? This study by Harvard University looks at the effect of geography, integration and institutions on cross-national variations in income. It finds that the quality of institutions has by far the greatest influence but argues that this knowledge offers little guidance to policy-makers.
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Acemoglu, D., Johnson, S. and Robinson, J. 2004. ‘Institutions as the Fundamental Cause of Long-Run Growth’, in Handbook of Economic Growth eds. P. Aghion and S. Durlauf, North-Holland, Amsterdam
Why are some societies poorer than others? Why do some have worse economic institutions than others? This paper for the National Bureau of Economic Research (NBER) uses historical examples of European colonialism and Korea to develop a framework for analysing differences in economic institutions across countries. Economic outcomes are determined by the quality of economic institutions, which are rooted in political institutions and the distribution of resources. Good economic institutions emerge when there are constraints on power-holders, broad based property rights enforcement, and relatively few rents to be captured by elites.
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Kaufmann, D. and Kraay, A., 2003, 'Governance and Growth: Causality Which Way? Evidence for the World, in Brief', Governance Working Papers and Articles, The World Bank, Washington
Countries in which per capita incomes are high also tend to have a better quality of governance. But how should this relationship be interpreted? This article for the World Bank Institute argues that while institutional quality has a powerful impact on growth, higher incomes do not lead to better governance. Improving governance therefore requires ongoing action.
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Carothers, T., 2003, 'Promoting the Rule of Law Abroad. The Problem of Knowledge', Carnegie Endowment Working Papers No. 34, Carnegie Endowment for International Peace,  Washington
This paper from the Carnegie Endowment for International Peace considers the apparent lack of knowledge supporting rule-of-law projects in developing countries. There is a surprising amount of uncertainty about the rationale for rule-of-law promotion and what actually constitutes the ‘rule of law’. There is limited knowledge about how system changes occur and what long-term effects specific changes will have on the development of the rule of law.
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Jütting, J., 2003, 'Institutions and Development: A Critical Review', OECD Development Centre, Technical Paper No. 210
The role of institutions in development has come under increasing scrutiny in recent years. Many studies have found that high-quality, well-performing institutions go hand in hand with positive development, but evidence regarding the causes of this remains thin. In response, this paper from the OECD Development Centre proposes an analytical framework that maps out key channels of influence between institutions and development outcomes.
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