Abstract
The contention that “inclusive” institutions are the deep determinants of economic growth remains unsatisfactory. This paper develops an alternative theoretical and empirical case that economic structures are the fundamental cause of economic performance. Economic structures determine the rate of structural learning, affect institutional performance, influence the distribution of income and establish the direction of political transitions, thereby, economic performance. The paper highlights the feedback loops among institutions, political power and economic structures, thus, markets on their own will not ensure growth-enhancing transformations. The workings of this framework are illustrated using a USA case study, and it exposes the structural origins of the financial crisis.
Highlights
Why are some countries rich and others poor? Since Solow (1956), the tentative answer has been differences in capital accumulation and technical change, but this was unsatisfactory since the theory failed to explain what accounts for these differences
The latter have overlooked the role of institutions in the growth process, and new institutional economists ignore the role of economic structures in the dynamics of growth
4 Conclusion This paper argues that economic structures are the fundamental cause of long-run growth or stagnation
Summary
Why are some countries rich and others poor? Since Solow (1956), the tentative answer has been differences in capital accumulation and technical change, but this was unsatisfactory since the theory failed to explain what accounts for these differences. Democratic transitions are more likely in increasing returns production structures and this enhances the diffusion of technical knowledge (Acemoglu 2008), which is an important proximate cause of growth. This creates an equilibrium among political power, institutions and economic structures and explains why growth-enhancing structural change is the exception rather than the rule.
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