Should we believe the institutions and growth literature?

Dietz Vollrath at the Growth Economics Blog has a three part series on problems with the the empirical institutions and growth literature. If you’re a development economist or political economy person you should read these posts, and follow the blog. (It’s probably the best out there on economic growth, because–and in spite of–the fact it dives into the weeds once in a while.)

If you’ve immersed yourself in the literature you might not hear a lot new from Vollrath, but I am willing to bet you will hear at least a little new. I learned a good deal.

The empirical institutions and growth literature he doesn’t review is the largely historical and non-quantitative one. I find it more compelling and rich than the statistical literature, but they’re nice complements.

This has made me want to write up my notes and impressions on the literature, and how I teach it. Given that I don’t have the time, a few quick thoughts and pointers:

  • The institutions literature has focused too much on constraints and not on capacity. Constraints on power matter a lot. But the capacity of the state to get things done is equally or more important (e.g. collecting taxes, waging war, delivering justice and other services). In a statistical sense, you could say there’s an omitted variable problem–when we see constraints mattering it is actually capturing the effect of both constraints and capacity. But there’s actually a deeper problem of these being aspects of political development that have different determinants, and may feed off of one another.
  • You might argue a third dimension of institutions is the political machinery that gets developed to answer the question “Who decides?”. And re-answer it every day without a destructive conflict or tumultuous turnover of power. All the apparatus that helps elites and groups bargain and make and hold agreements, have a political conversation and compete for power more or less peacefully. This kind of political development has a lot in common with “constraints” and “capacity”, but it’s distinct. “How to manage peaceful political transitions as the relative power of different interest groups change?” is a really, really, fundamental question a society has to answer to have persistent economic growth.
  • The slightly less-read stuff that should be more read, in my opinion:
    • North, Wallis and Weingast, either their book or this summary paper
    • Tim Besley and Torsten Persson’s work on state capacity (one example). If there is a less technical piece many people would be happy for the pointer (and I could use it in my undergrad and masters classes).
    • Some of the small-sample comparative case study work in Latin America, such as Jeffrey Paige or James Mahoney. most economists only read Engerman and Sokoloff.
    • There’s a huge comparative politics literature (i.e. historical, comparative case studies). One of the nicer, more concise summaries is in John Ishiyama’s short textbook. He’s also the APSR editor at the moment. My master’s class syllabus has more of this in the “recommended readings”
    • There’s a growing empirical micro literature that uses subnational or individual data to show how important are things like social norms, rules, decision-making processes, and all the other things we think of as “institutions” at the micro level. A slightly dated and incomplete set are buried in my PhD syllabus for the political science/sustainable development students. One of the takeaways that is hard to reconcile with the macro literature is that these local institutions appear to be quite malleable in the short term. How do we understand persistence at the macro level then?

Hat tip to the Development Impact blog for reminding me about this series. In my opinion it’s the other essential blog to follow in development economics. 2 of my 4 email subscriptions to blogs are the two mentioned in this post, since I don’t want to miss one.

What is missing is a blog that introduces this audience to comparative politics and political development. The Why Nations Fail blog comes closest, and often has must read posts.