Institution as the Fundamental Cause of Long Tern Growth

Economic Development: Growth is associated with structural, social change and change in the important institutions of the economy.

insights which have been neglected by the later literature of new growth theory and new trade

Erik Brynjolfsson once said “The key to growth? Race with the machines”. Erik stated this in an argument against Robert Gordon. The two of these wise men had discussed innovation and had major differences. Robert believed that innovation would have an end, while Erik said growth would continue as long as the people kept up with it the innovations. I agree with Erik, because growth does not end; and it can continue as long as people race with the new productivity and don’t allow it to take over.

Economic growth, put simply, is “an increase in the amount of goods and services produced per head of the population over a period of time”; development is inextricably linked with this economic growth. By utilising theories of economic growth and development we can see how the Chinese and Sub-Saharan African economies have emerged, but, more notably, we can use these to look at patterns from past and present to show their experience and the implications of this growth for the future.

Established Stanford University professor, economist, and political scientist Barry Weingast portrays the global impact of institutions in his work through a term he coins the “fundamental political dilemma.” The dilemma illustrates that any government that has the power to protect property rights, enforce contracts, and maintain basic stability also has the power to take away the wealth of its citizens. A major question to consider, then, is what actually determines why some nations choose one route instead of the other? Weingast believes that the answer to this question lies in institutions; he states that institutions allow countries to choose the “rules of the game” and organize society. Simply put, the carefully-crafted institutions of

In macroeconomics, a large portion of discussion is devoted to economic growth. The output of the national economy as a whole represents our average access to goods and services. The long-run growth of the recent past represents everything from increase in access to running water and electricity to development of personal computers and the Internet. In short, it describes the heightened standard of living we enjoy today. Endogenous growth theory postulates that human capital and technology are central to enabling this growth. Human capital describes the stock of knowledge, habits, and social and personality attributes, including creativity and innovative ability. Paul Romer has made significant contributions to developing endogenous growth

The definition of economic growth is the amalgamation of labor, capital and technological change. As people living in modern societies, one can see that they contribute to this growth with their everyday economic decisions such as investing, consuming and saving. Although one can clearly see the way this affects microeconomics, it brings into the question how one's everyday decisions affect the larger scale of macroeconomics. Robert Gordon, an economist wrote in one of his highly acclaimed papers about the long history of U.S. economic growth, furthermore linking periods of slow and rapid growth to three industrial revolutions: steam and railroads; electricity and the internal combustion engine; and the recent advent of computers, the internet and mobile phones. Although modern society have grown economically, he claims that if we continue to innovate as rapidly we are, the total economic growth may be substantially lower than the average growth between 1860 and 2007. Although technology economically helps people dramatically, it is still not enough to offset the overall pullback from rising income inequality, falling labor force participation rates, lack of widespread education and changing demographic structures. Thus leading to those who are single having to work 2 times harder to simply survive in current and future

In the Acemeglu, Johnson and Robinson article, “Institutions as a Fundamental Cause of Long Term Growth”, the authors emphasize how institutions are the main determinant of economic development because stronger institutions allow for more growth in education, security, and health. To observe whether strong institutions determine economic growth it is important to mention the characteristics of a strong institution that allows for fast growth. Strong institutions are able to enforce property rights, a fair judiciary, efficient bureaucracies, intellectual property rights, corporation government bankruptcy laws, and democracy (e.g. “(Lecture 13)”). Going in depth

“In 2010, the prestigious Nemmers Prize in Economics, awarded biennially to recognize work of lasting significance, was given to Helpman for fundamental contributions to the understanding of modern international economics and the effects of political institutions on trade policy and economic growth” (Clement, 2012). “The Mystery of Economic Growth” that was written by Elhanan Helpman provides a non-technical description of growth economics over the last half of a century. This paper will connect theory to data of four major countries United States, French, Brazil, and Japan. The principle that emerges from “The Mystery of Economic Growth” is that long term growth comes from innovation and adoption of technology in an economy. Four outlooks that Elhanan Helpman has on economic growth that are relevant in his book are able to help readers connect theory to countries and see why economies behave the way they do. First, Innovation of technology with new techniques of production helps globalization. Second, the gain of human capital for the explanation of growth rates in different counties. Third, Total Factor Productivity of technology and knowledge leads to greater prosperity and economic growth in a country. Fourth, economic intuitions play a role in economic growth by implementing policies. The next paragraphs will relate these outlooks from Helpman and compare them to the economies of the United States, French, Brazil, and Japan. Innovation

Through our discussion this past week, we pondered the role of institutions in investment and the subsequent resulting growth. I hypothesize that institutional quality, measured through economic freedom, influences three separate mechanisms that determine the level of investment and its efficiency in creating growth. First, institutional quality determines how markets allocate investment capital, favoring both less risky and higher returning projects. Countries with institutions more consistent with economic freedom have lower taxation rates and less chance of asset seizure, making them more attractive destinations for investment capital. Secondly, prospective investment capital is less likely to be used to pay bribes or be confiscated by the governments of more economically free countries. Thus, the capital is more likely to create growth rather than be allocated towards unproductive means. Lastly, countries with more economic freedom should observe higher rates of return due to increased worker productivity and lower regulatory costs, creating more economic growth and allowing for further investment. In sum, investment in more likely to be allocated to countries with better quality institutions, the investment capital is more likely to be used towards productive projects in those countries, and finally, the investment capital should produce higher returns, leading to more economic growth. This is particularly relevant in the

My views concerning the growth of firms have changed after completing AP Macroeconomics. Previously, I did not recognize that there are differences between short-term and long-term benefits. I believed that there were many ways for a

February 10, 2009 The purpose of this note is to define the meaning of the term ‘inclusive’ growth. It is often used interchangeably with a suite of other terms, including ‘broad-based growth’, ‘shared growth’, and ‘pro-poor growth’. The paper clarifies the distinctions between these terms as well as highlights similarities.

This theory emphasizes that technology change has a major influence on economic growth, and that technological advances happen by chance. The theory argues that econonomic growth will not continue unless there continues to be advances in technology.

There are great differences and inequality between countries around the world. Many countries don’t have access to basic needs such as education, health care, law and order, safety why is that? Why is there a gap between rich and poor? How did some countries manage to become rich while others remained poor? These are the regularly asked questions about the development of countries. There are different perspectives on the growth of countries; however the three main theories mentioned in the book are due to geography, culture, ignorance or institutions. The authors of “Why nations fail “Acemoglu and Robhinson have challenged these theories . They believe that political institutions are the main factors for development of a well-functioning nation and the determinants of economic institutions. "It's all about institutions," Daron Acemoglu, one of the authors, explained. "It's really about human-made systems, rules, regulations, formal or informal that creates different incentives."

Economic growth is shaped by policy context and promoted most effectively when it is consistent with either liberal market or co-ordinated market ideal type varieties of Capitalism. Policy inconsistency dampers economic growth