Governance, Growth, and Development Decision-making - School of ...

2. Causal Relationships
There is a large econometric literature linking institutions to
growth, 2 which I will not deal with in any depth here, except to note
that “institutions” (as well as the related term “governance”) as an
independent variable is often used inconsistently, referring at different
times to state capacity, rule of law, and democracy. Each of these
three components of political development has different effects on
growth.
For example, state capacity would seem to be much more
important than either rule of law or democracy, particularly at low
levels of per capita GDP (i.e., below $1000). Neither South Korea
during the 1960s or 70s, nor China from the period 1978-present,
had a strong rule of law; property rights were partial and insecure,
and there was a weak legal infrastructure in both countries. They
did, however, possess strong developmental states that maintained
political order and pursued pro-developmental rather than predatory
policies. Their growth rates were not worse than territories like
Hong Kong or Singapore that inherited modern rule-of-law systems
from the British.
There is a growing literature showing how property rights do not
have to be universal to sustain impressive levels of economic growth,
2
For example: Acemoglu, Daron, Robinson, James A. et. al., (2001). “The
Colonial Origins of Comparative Development: An Empirical Investigation,”
American Economic Review 91(5): 1369–401
—Knack, Steve, and Phil Keefer. “Institutions and Economic Performance:
Cross-Country Tests Using Alternative Institutional Measures.” Economics
and Politics 7 (1995): 207–27
—Rodrik, Dani, Arvind Subramanian, and Francesco Trebbi. “Institutions
Rule: The Primacy of Institutions over Geography and Integration
in Economic Development.” Journal of Economic Growth Vol. 9, No. 2,
June 2004
—Kaufmann, Daniel, and Aart Kraay. “Growth without Governance,” in
Economía, Winter 2002. http://www.worldbank.org/wbi/governance/pubs/
growthgov.html
Francis Fukuyama 27