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

The actual impact of democratic institutions on growth is, in
fact, highly contextual. In countries ruled by competent developmental
states, greater political participation, particularly if introduced
suddenly, may lead to increased demands for redistribution
and rent-seeking, both of which may be detrimental to growth. On
the other hand, in countries with some combination of predatory
states, low capacity, and high levels of corruption, democratic accountability
may be the only route available to institutional change
and long-term growth.
3. Endogeneity and Feedback Loops
I take for granted the fact that a certain basic level of state capacity
is the sine qua non of any degree of economic growth. Collier
(2007) 6 demonstrates the converse of this, that absence of a state and
the existence of conflict is bad for growth). Beyond this, however,
there is a large debate over the endogeneity of institutions, and the
degree to which the political and social consequences of growth
have feedback impacts on growth.
Jeffrey Sachs has been a lonely voice arguing that institutions
are almost entirely endogenous to growth. 7 He is undoubtedly right
that institutions are to some extent endogenous; very poor countries
lack human and material resources to staff bureaucracies and
provide a range of public goods. But his failure to recognize the
6
Collier, Paul, (2007). The Bottom Billion: Why the Poorest Countries are
Failing and What Can Be Done About It (Oxford: Oxford University Press)
7
See: Sachs, Jeffrey and John W. McArthur (2001). Institutions and Geography:
Comment on Acemoglu, Johnson, and Robinson (2000) (Cambridge,
MA: NBER Working Paper 8114); Sachs, Jeffrey and Andrew Warner (1995).
Natural Resource Abundance and Economic Growth (: NBER Working Paper
5398).
Francis Fukuyama 29