“An estimated 766 million people, or 10.7 percent of the world’s population, lived in extreme poverty in 2013.” (World Bank 2017, p. 1) As if these numbers itself weren’t enough sign of the great inequality in incomes after centuries of prosperity, following the World Income Indicators, more than half of the people living under these circumstances originate from one region, Sub-Saharan-Africa. Maybe as long as growth has been observable, controversies about the causes and its inherent erratic distribution flourished. Over time, many hypotheses have been proposed, discussed and rejected. Two of the ones that managed to establish themselves are subject of this essay. More specifically, what their key arguments and empirical support are. One the one hand, the institutional theory of growth promoted most notably by Acemoglu and fellows (2012; 2005). On the other hand the geographic theory of growth, proposed by Sachs et al. (1998; 1999).
Plan of the essay is as follows. Chapter II will describe the institutional theory of growth as described in Acemoglu and Robinson (2012). Chapter III assesses the key factors and their empirical support of the institutional and geographic growth hypotheses respectively. Followed by Chapter IV, which gives insight on surrounding literature. Chapter V discusses the main problems of each line of argument, concluding that the institutional model offers more consistency.
Inhaltsverzeichnis (Table of Contents)
- I. Introduction
- II. The Institutional Theory of Growth and its Contractants
- III. Institutions vs Geography
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This paper aims to compare and contrast two prominent theories of economic growth: the institutional theory and the geographic theory. It analyzes the key arguments and empirical support for each theory, focusing on their ability to explain the uneven distribution of global income.
- The role of institutions in shaping economic incentives and growth.
- The impact of geographic and climatic factors on economic development.
- A comparative analysis of the institutional and geographic theories.
- The limitations and challenges of both theoretical frameworks.
- The historical evidence supporting or contradicting each theory.
Zusammenfassung der Kapitel (Chapter Summaries)
I. Introduction: This introductory chapter sets the stage by highlighting the stark global income inequality, particularly the high concentration of extreme poverty in Sub-Saharan Africa. It introduces the institutional and geographic theories of growth as the main subjects of analysis, outlining the paper's structure and the key questions it seeks to address. The chapter establishes the context for the subsequent chapters by presenting the scope of global income disparity and its historical persistence.
II. The Institutional Theory of Growth and its Contractants: This chapter delves into the institutional theory of growth, primarily drawing on the work of Acemoglu, Johnson, and Robinson. It defines institutions as constraints shaping human interaction and structuring incentives. The chapter emphasizes how institutions, particularly those that secure property rights and provide equitable access to resources, are crucial for fostering investment, technological advancement, and ultimately, economic growth. It explains how the distribution of political power influences the choice of institutions, often leading to systems that benefit the dominant group, even if they are not economically optimal. The chapter highlights the historical disparity in income distribution, contrasting the high per capita GDP of Western Europe and its former colonies with that of other regions, especially Sub-Saharan Africa. This contrast is attributed to differences in institutional settings, particularly the adoption of "good institutions" in the wealthier regions.
III. Institutions vs Geography: This chapter presents a comparative analysis of the institutional and geographic theories of growth. It examines empirical evidence, specifically the positive correlation between income levels and institutional quality (measured by protection against expropriation). The chapter critically assesses the causality between these variables, acknowledging potential reverse causality and omitted factors. To support the institutional hypothesis, the chapter cites historical examples and natural experiments, such as the contrasting economic trajectories of formerly prosperous regions that became relatively poorer after European colonization. These differences are attributed to the type of institutions imposed by colonial powers, influenced by factors like settler mortality rates and the suitability of the land for European settlement. The chapter also acknowledges methodological limitations in the historical data used, including the reliance on proxies for pre-colonial economic development and the challenges inherent in reconstructing historical data across diverse regions.
Schlüsselwörter (Keywords)
Institutional theory, geographic theory, economic growth, income inequality, property rights, political power, colonial legacy, Sub-Saharan Africa, expropriation risk, historical data, institutional quality.
Frequently Asked Questions: A Comprehensive Language Preview
What is the main topic of this paper?
This paper compares and contrasts two prominent theories of economic growth: the institutional theory and the geographic theory. It analyzes their ability to explain the uneven distribution of global income, focusing on their key arguments and empirical support.
What are the key themes explored in this paper?
The paper explores the role of institutions in shaping economic incentives and growth, the impact of geographic and climatic factors on economic development, a comparative analysis of the institutional and geographic theories, the limitations and challenges of both theoretical frameworks, and the historical evidence supporting or contradicting each theory.
What are the key theories discussed?
The main theories discussed are the institutional theory of growth (drawing heavily on the work of Acemoglu, Johnson, and Robinson) and the geographic theory of growth. The institutional theory emphasizes the role of institutions, particularly those securing property rights and equitable resource access, in fostering investment and growth. The geographic theory focuses on the impact of geographic and climatic factors on economic development.
What is the institutional theory of growth?
The institutional theory posits that institutions, defined as constraints shaping human interaction and structuring incentives, are crucial for economic growth. It highlights how institutions that secure property rights and provide equitable access to resources foster investment and technological advancement. The distribution of political power is also a key factor, often leading to institutions that benefit the dominant group, even if not economically optimal.
How does the paper analyze the institutional theory?
The paper analyzes the institutional theory by examining its core tenets, exploring the relationship between political power and institutional choices, and evaluating historical examples illustrating the impact of institutional differences on economic outcomes. It contrasts the economic performance of regions with differing institutional arrangements.
What is the role of geography in the paper?
The paper incorporates the geographic theory of growth, which emphasizes the influence of geographic and climatic factors on economic development. It compares and contrasts this theory with the institutional theory, analyzing empirical evidence to assess the relative importance of each.
How does the paper compare the institutional and geographic theories?
The paper provides a comparative analysis of the two theories, examining empirical evidence such as the correlation between income levels and institutional quality. It critically assesses causality, acknowledging potential reverse causality and omitted variables. Historical examples and natural experiments are used to support the arguments.
What kind of empirical evidence is used?
The paper uses empirical evidence such as the positive correlation between income levels and institutional quality (measured by protection against expropriation). It also cites historical examples and natural experiments, including the contrasting economic trajectories of formerly prosperous regions that became relatively poorer after European colonization. Methodological limitations of historical data are also acknowledged.
What are the chapter summaries?
The paper includes summaries of three chapters: an introduction outlining the scope of global income inequality and introducing the key theories; a chapter detailing the institutional theory and its implications; and a chapter comparing and contrasting the institutional and geographic theories using empirical evidence and historical examples.
What are the key takeaways?
Key takeaways include the crucial role of institutions in shaping economic growth, the importance of considering both institutional and geographic factors in explaining income inequality, the challenges in establishing causal relationships between institutions, geography and economic outcomes, and the limitations of historical data in providing definitive answers.
What are the keywords associated with this paper?
Keywords include: Institutional theory, geographic theory, economic growth, income inequality, property rights, political power, colonial legacy, Sub-Saharan Africa, expropriation risk, historical data, institutional quality.
- Quote paper
- Johannes Simon (Author), 2018, Why Nations Fail. Key Arguments and Empirical Support of the Theories, Munich, GRIN Verlag, https://www.grin.com/document/476723
