The Longue Durée of Finance: New Research on Old Financial Markets

Although political and legal institutions are essential to any nation's economic development, the forces that have shaped these institutions are poorly understood. Drawing on rich evidence about the development of the American states from the mid-nineteenth to the late twentieth century, this book documents the mechanisms through which geographical and historical conditions--such as climate, access to water transportation, and early legal systems--impacted political and judicial institutions and economic growth. The book shows how a state's geography and climate influenced whether elites based their wealth in agriculture or trade. States with more occupationally diverse elites in 1860 had greater levels of political competition in their legislature from 1866 to 2000. The book also examines the effects of early legal systems. Because of their colonial history, thirteen states had an operational civil-law legal system prior to statehood. All of these states except Louisiana would later adopt common law. By the late eighteenth century, the two legal systems differed in their balances of power. In civil-law systems, judiciaries were subordinate to legislatures, whereas in common-law systems, the two were more equal. Former civil-law states and common-law states exhibit persistent differences in the structure of their courts, the retention of judges, and judicial budgets. Moreover, changes in court structures, retention procedures, and budgets occur under very different conditions in civil-law and common-law states. The Evolution of a Nation illustrates how initial geographical and historical conditions can determine the evolution of political and legal institutions and long-run growth.

Although political and legal institutions are essential to any nation's economic development, the forces that have shaped these institutions are poorly understood. Drawing on rich evidence about the development of the American states from the mid-nineteenth to the late twentieth century, this book documents the mechanisms through which geographical and historical conditions—such as climate, access to water transportation, and early legal systems—impacted political and judicial institutions and economic growth. The book shows how a state's geography and climate influenced whether elites based their wealth in agriculture or trade. States with more occupationally diverse elites in 1860 had greater levels of political competition in their legislature from 1866 to 2000. The book also examines the effects of early legal systems. Because of their colonial history, thirteen states had an operational civil-law legal system prior to statehood. All of these states except Louisiana would later adopt common law. By the late eighteenth century, the two legal systems differed in their balances of power. In civil-law systems, judiciaries were subordinate to legislatures, whereas in common-law systems, the two were more equal. Former civil-law states and common-law states exhibit persistent differences in the structure of their courts, the retention of judges, and judicial budgets. Moreover, changes in court structures, retention procedures, and budgets occur under very different conditions in civil-law and common-law states. This book illustrates how initial geographical and historical conditions can determine the evolution of political and legal institutions and long-run growth.

Publisher Summary This chapter discusses the financial development and economic growth in underdeveloped countries. An observed characteristic of the process of economic development over time, in a market-oriented economy using the price mechanism to allocate resources, is an increase in the number and variety of financial institutions and a substantial rise in the proportion not only of money but also of the total of all financial assets relative to GNP and to tangible wealth. Typical statements indicate that the financial system somehow accommodates—or, to the extent that it malfunctions, it restricts—growth of real per capita output. Such an approach places emphasis on the demand side for financial services; as the economy grows it generates additional and new demands for these services, which bring about a supply response in the growth of the financial system. In this view, the lack of financial institutions in underdeveloped countries is simply an indication of the lack of demand for their services.

The long run trade orientation of an economy is measured in this article by an index which measures the extent to which the real exchange rate is distorted away from its free trade level by the trade regime. The technique for estimating a cross country index of real exchange rate distortion uses the international comparison of prices prepared by Robert Summers and Alan Heston. Resource endowment constitutes the norm and real overvaluation or undervaluation relative to this norm reveals whether incentives are directed to the domestic or international market. The index is constructed based on data for GDP/capita average price level in US dollars 1976-85 and GDP growth rate/capita 1976-85. Other sections are devoted the comparison of the procedure for 117 countries between 1976-85 and an examination of the empirical relationship between outward orientation and economic growth and sensitivity analysis. The results indicate that Latin America generally was overvalued by 33% relative to Asia and Africa was overvalued by 86%. The real exchange rate distortion index supports the view that Asian countries are more outward oriented. Asian economies have lower price levels which reflect relatively modest protection and incentives oriented to external markets. Latin American countries with moderately high price level and African countries with very high price levels reflect strong protection and incentives directed to production for the domestic market. An alternative specification which eliminates the dummy variables for Africa yields similar results with slightly lower magnitude; i.e. overvaluation is 60% instead of 86% for Africa and Latin America is overvalued by 39% instead of 33% over Asia. A table is provided which indicates by country the distortion and variability of the real exchange rate the GDP growth the 1976 GDP/capita and the investment rate. Another finding was that there is a significant negative relationship between distortion of the real exchange rate and growth of GDP/capita after controlling for the effects of real exchange rate variability and investment level with both the original specification and the alternative. The growth rate/capita of Latin American and African countries would increase 1.5-2.1% with a shift to move outward oriented trade policies. This gain as well as devaluation of the real exchange reate trade liberalization and maintenance of a stable real exchange rate would contribute to positive growth rates. In the analysis of the poorest 24 countries the result was that only rate distortion and not variability and investment rate explained the growth rate. The gain for Ghana for example of adopting the trade policies and exchange rate of Bangladesh would be 5% to its growth.

Researchers have made many attempts to investigate the interaction between the quality and efficiency of a country’s institutions and its economic performance. Within this framework, the relationship between a country’s legal institutions and its financial system are emphasized as essential factors in creating and enhancing overall economic growth. However, the link between the legal institutions and financial systems remains controversial. This paper reports on a survey administered to 1,362 participants, which targeted investment preferences under different legal and financial institutions. Our results suggest that the performance of a country’s legal institutions affects how willing investors are to invest money in the country and that people of different gender, age, political tradition, and professional experience react differently to these institutions.

Institutional Quality and Income Distribution

This article aims to explore the complex relationship between social inequality and economic growth. From the perspective of international comparison, this article analyzes the differences and commonness of social inequality and economic growth in different countries and regions, and reveals the potential influence of social inequality on economic growth. Firstly, the article reviews the relevant theories and makes clear the internal relationship between social inequality and economic growth. Then, using international data, the degree of social inequality and economic growth performance in different countries and regions are compared and analyzed. It is found that countries with higher social inequality are often constrained in their economic growth, while countries with higher social equality are more likely to achieve sustained and stable economic growth. This article further discusses the influence mechanism of social inequality on economic growth, including income distribution, educational opportunities, medical and health services, political system and legal environment. Based on these analyses, a series of targeted policy suggestions are put forward, aiming at reducing social inequality and realizing social sustainable development.

Ausgang aus der langen Nacht. Versuch über ein entkolonisiertes Afrika Achille Mbembe Berlin: Suhrkamp, 2016 Critique of Black Reason Achille Mbembe Durham: Duke University Press, 2017 Politik der Feindschaft Achille Mbembe Berlin: Suhrkamp, 2017 How to think the world? What are the conditions for rethinking the world in a way that opens up an alternative way of being-in-the world, or of being-in-common? How to think an open future that moves beyond the history of colonialism and race with which the present is so deeply entangled? These questions are at the heart of a cycle of reflections that the Cameroonian philosopher Achille Mbembe started in his critically acclaimed On the Postcolony (2001)—a rich, figurative and temporal rereading of Africa that seeks to account for the complexities of social and political imaginations in the postcolony. In his latest three books, Sortir de la Grande Nuit (2010/2016),1 Critique de la Raison Nègre (2013/2017a)2 and Politiques de l'Inimitié (2016/2017b),3 Mbembe broadens the perspective. The issue of how to read Africa that was central to On the Postcolony feeds into the larger question of how to think a globalizing world and how to reconstitute critical thought in a way that may indeed open up new possibilities for thinking a humane future. For Mbembe, however, these issues are closely connected, as thinking the world means thinking it from Africa. Mbembe's work is both historical and philosophical. It is motivated by a critique of the resurgence of a spirit (Zeitgeist) of closure and segregation. Breaking with this spirit requires investigating the conditions for inhabiting the open. It means confronting the past in order to uncover the conditions of the possibility of an open future that is inscribed in the present. While his more historically oriented Critique of Black Reason has been widely discussed and quickly translated into English and other languages, the other two books have received far less attention. And yet, it is against the background of Afropolitanism as developed in the Sortir de la Grande Nuit, and within the horizon of the critique of the present as articulated in the new publication, Politiques de l'Inimitié that the systematic connection between the books—and thus the impressive breadth and development of Mbembe's work—comes to the fore; from the inquiry into subjectivity and temporality in the postcolony, through an investigation of the conditions of decolonization and a rereading of the history of modernity, to an encompassing critique of the current demise of democracy. The main reference points for Mbembe's quest for the conditions of reconstituting critical thought reflect his own intellectual trajectory. This trajectory is most tangible in Sortir de la grande nuit (2016), a sweeping essay on the possibility of decolonization, which contains the core trains of thought that he will further develop in his two subsequent books. It spans West Africa, where Mbembe grew up and later taught; France, where he studied, the USA, where he taught at various universities, and finally South Africa, where he has been based for the past 15 years. Via this trajectory Mbembe reconstructs the practical sense of decolonization and interrogates the conditions for a decolonized community emerging from the dark night of the postcolonial. Borrowing Fanon's call to shake off the long night in which we were plunged (Fanon, 1963, p. 311), the title of the book places Mbembe firmly in the genealogy of Fanonian thought. While formal decolonization was a key moment of late modernity, reappropriating the modern ideals of equality and freedom, it did not succeed in abrogating the split self of the colonial subject and thus to posit the self as a singular form of the universal. For Mbembe, however, the philosophical horizon of decolonization has always transcended the narrow, historical perspective on what it means to decolonize. It refers to a reopening of critical thought, a thinking of the coming, of the setting in, and of the rising that goes beyond the anti-colonial struggle itself. In other words, it refers to the dis-enclosure of the world (2016, p. 854) and the reconstitution of the subject. Mbembe adopts the concept of dis-enclosure (déclosion) from the French phenomenologist Jean-Luc Nancy (2008). It refers to the reversal of a closing, to the opening of an enclosure and to the coming into being of something new that was foreclosed. Dis-enclosure invites confronting what lies beyond the enclosed. And thus, for Mbembe, the concept of dis-enclosure refers to the conditions for reopening critical thought. A renewal of critical thinking presupposes that a society is free in a radical sense vis-à-vis its own past and future (2016, p. 299). It requires breaking with the repetition of the perpetual sameness and of a tradition that has turned into law and necessity. It calls for the kind of thought that is conscious of the possibilities that lie beyond itself. In other words, it calls for reconstituting oneself as a responsible subject towards oneself, towards others and towards the world. This is what Mbembe calls the rise in humanity. Mbembe links the notion of dis-enclosure to the colonial experience of a denial of humanity. He conceives of decolonization in terms of opening up the world and of reclaiming humanity and thus one's place in the world; an idea that is at the heart of many Black thinkers of decolonization. He traces its legacy from Fanon's theory of racialization and his insistence on a new world to come into being, to Senghor's emphasis on the sharing of differences, to Edouard Glissant's notion of encountering the world in its entirety, the all-world (le tout-monde) and to Paul Gilroy's idea of a planetary humanism. In all these approaches, Mbembe finds the idea of reuniting the particular African experience with the question of universal humanity through an emphasis on relating to and sharing a world in-common. While universality refers implicitly to the inclusion of preexisting entities, the in-common presupposes the communicability and sharing of the singular in its plurality. Humanity emerges from this process of sharing and communicating (2016, p. 149). This notion of the in-common is at the root of rethinking what Mbembe calls—borrowing from Derrida (2005)—the democracy-to-come. The idea of a democracy-to-come serves as a horizon for change, for reopening critical thought and for reconstituting humanity. For Mbembe, democracy, at its core, designates an ethical incident based on the recognition of the Other in her uniqueness (unicité). The future of democracy hinges on the issue of how to treat the Other. Thinking a democracy-to-come and thus reorienting critical thought towards an open, unpredictable future presupposes a critique of the forms of universalism that construct the Other as an enemy. It presupposes a deconstruction of the colonial knowledge that enabled colonial rule and it requires a rereading of history that posits us as sharing a history and a future. Mbembe interrogates the conditions for sustaining such critical thought from various perspectives along his intellectual trajectory. He starts from an autobiographical reflection on his home country, Cameroon, as the "place where the skull of a dead relative is located" (2016, p. 49). This metaphor evokes a political order founded on the radical denial of humanity to the political adversary. Those who came into power with independence treated other independence fighters as terrorists, murdered them and refused them a proper burial. And thus, the cradle of the newly independent nations bore the skulls of brothers. This fratricide is the prism through which Mbembe develops his critique of decolonization in Africa. Haunted by the ghosts of this denial of humanity to one's own dead brothers, the political order in Africa constitutes a "politics of cruelty" rather than a "politics of brotherliness and community" (2016, p. 50). It bears the mark of an independence that sacrificed freedom for "autonomy in the framework of a dictatorship" (2016, p. 53). Turning to Europe, Mbembe argues that Europe may play a positive role in thinking the world only if it develops the capacity to re-read its history not as one of reason and universalism, but rather as one of the wolf who devours his enemy (2016, p. 94). Focusing on France, however, he shows that such a re-reading of the past is far from self-evident in former colonial powers. France set its colonies free without ever decolonizing itself. France displays a striking inability to come to terms with its colonial past; an inability reflected in the failure to engage with the intellectual project of post-colonial thought. It is based on a deep tension, particularly palpable in French republicanism, between the idea of universal equality, which points towards a cosmopolitanism of humanity, and an abstract universalism that denies the fact that the human reveals itself in singular, unique forms—and hence also denies the issue of race. As a result, France can conceive of the Other only as the double of its own narcissistic self-conception and thus fails to contribute to thinking the world and a democracy-to-come. Given the difficulties of post-colonial African nations in reimagining their future and the tremendous failure of the colonizers to decolonize themselves, one may wonder: where should one look for points of reference for emerging from the dark night and thinking the world? Again, Mbembe's reply reflects his life trajectory. For him, it is a particular Afropolitan form of cosmopolitanism based on the idea of circulation and crossing, as well as of multiplicity and simultaneity that provides the key to substantiate the possibility of an open future. This Afropolitanism may be palpable in New York, a city characterized not just by its rich African American intellectual and artistic scene, but also by its "belief in itself and in what is coming—a future in which something new can always be created" (2016, p. 57). But it is in Africa, especially in Johannesburg, where Mbembe discovers the laboratory for "a new form of cultural mergence, the pedestal of an Afropolitan modernity" (2016, p. 61). That this alternative form of modernity emerges in the African context is no coincidence. It is based on the long African experience of dislocation and dilatation. Throughout the 20th century the cartography of Africa has continuously been subjected to systematic instability. Metropolises such as Johannesburg have served as destinations for large migratory movements from which new forms of African urban cultures emerge. They are based on a logic of dilatation and circulation, which reflects the long history of African migration and dispersion within the continent and towards the world, most notably, of course, through the slave trade. It resonates with precolonial African political formations based on networks, on capillary forms of space and territoriality in which Mbembe sees a precolonial African modernity (2016, p. 284). It also reflects the process of immersion of people from all over the world who settled in Africa and whose history and way of being in the world is interlocked with Africa. Building on the logic of dilatation and circulation, the notion of Afropolitanism articulates a cosmopolitan vision based on reclaiming the capacity of intersection. It aims to resist both an abstract universalism and the attempt to reconstitute an imagined unique essence of Africa. It defies any binary conception of us and them, including any identity built on exclusion or on victimhood. Instead, it emphasizes the capacity to inhabit the open that emerges from the experience of mergence and movement. It conceives of Africa as an inter-space—a space of circulating and interlocking worlds that provides a particularly stimulating context for cultivating a cultural, historical and aesthetic sensibility, which allows for recognizing oneself in the Other. Thus, it is in an African context in which Mbembe finds a practical repository for reconstituting critical thought and thinking the world. However, the Afropolitan horizon Mbembe proposes ultimately seems to be tied to a particular elite that is able to resist both the striving to belong to what is posited as universally human and the temptation to indulge in the Afrocentric impulse that promises redemption in a glorified past. In addition to the special significance he ascribes to Johannesburg as a source of Afropolitan thinking it is primarily African arts and most prominently novelists such as Yambo Ouologuem and Sony Labou Tansi who serve Mbembe as references for this new "cultural, historic and aesthetic sensitivity" (2016, p. 285). It stands to reason that a consciousness of interlocking worlds, together with an ability to leave one's own roots and affiliations behind and embrace the open, thrives in urban and artistic contexts. This focus on the urban and the arts, however, raises the question of how far emerging from the dark night of the postcolony is doomed to remain a project of urban or artistic avant-gardes who inhabit and have access to multiple worlds and thus easily straddle the divide between presumptuous universalism and essentializing parochialism. While Sortir de la grande nuit outlines a horizon for a decolonized world, Mbembe's two subsequent books deepen the inquiry into conditions of reconstituting critical thought with regard to a re-reading of the past and a critique of the present. With the Critique of Black Reason (2017a), Mbembe powerfully demonstrates what it could mean to provide a reading of European modernity that may transform a common past into a shared history. The keys to this alternative reading of European modernity are the twin concepts of Blackness (nègre5) and race. For Mbembe, race and Blackness are not just central elements of European imaginaries; they constitute the unacknowledged and often denied core; the "nuclear power plant" (2017a, p. 2) from which the modern project of knowledge and governance unfolds. Hence, any attempt to rethink the world as a world in-common needs to unravel the genealogy of race and Blackness. Mbembe's reading of European modernity is rich and complex, combining multiple layers of analysis, including material, structural, discursive, epistemological, psychological, and affective aspects. It does not provide a stable, linear, chronological history. The notion of race itself has never been a stable one. It is an "image, form, surface, figure, and—especially—a structure of imagination" (2017a, p. 32), in which fantasy supersedes reality and turns it into a fleeting and ambiguous experience. Mbembe's genealogy of race and Blackness skillfully reveals how it has been shaped and reshaped by history, just as it has itself shaped the very experience and meaning of the past, the present and the future. His account is structured around three critical moments. The first traces the concept of race to the birth of the racial subject and thus back to the slave ships and plantations that served as the backbone of the constitution of modern capitalism. For Mbembe, the Black slave represents the first racial subject. The signifier Black transformed people of African origin into bodies of extraction, into "living ore from which metal is extracted" (2017a, p. 40). Blackness became the synonym for race, and thus "one of the raw materials from which difference and surplus—a kind of life that can be wasted and spent without limit—are produced" (2017a, p. 34). This crucial role of race in an unprecedented process of accumulation is what sets the Atlantic slave trade apart from other systems of slavery. The Black Man6 is seen at once as an object, a body, and a piece of merchandise; he has "always been the name par excellence of the slave: man-of-metal, man-merchandise, man-of-money" (2017a, p. 47). Through a fierce critique of discourses on Blackness and Africa, Mbembe shows that race is not just the basis for the material global order but also for how we think the world. The noun Black designates "not human beings like all others but rather a distinct humanity"; it refers to those who represent "difference in its raw manifestation" (2017a, p. 46; original emphasis). Along with Blackness, the notion of Africa has also become a sign of ultimate alterity. Discourse on Africa is characterized by a striking abdication of responsibility and a "tremendous will to ignorance" (2017a, p. 70). Africa serves as "an inexhaustible well of phantasms" (2017a, p. 70); it refers to an "empty form that, in the strictest sense, escapes the criteria of truth and falsehood (2017a, p. 51)"; it invokes the "underside of the world"—the impotent, "incapable of producing the universal and of attesting to its existence" (2017a, p. 49). Africa stands for the "primordial arbitrariness" of designations to which nothing needs to respond but "the inaugural prejudice in its infinite regression" (2017a, p. 51). Mbembe analyzes the sources of this fantasizing through an exploration of the psychic dimension of power and race. Race is not merely a fiction; it is an unconscious desire and a way of affirming power—it is "a specular reality and impulsive force" (2017a, p. 32). It derives its power from substituting what is with another reality. It is "an operation of the imagination, the site of an encounter with the shadows and hidden zones of the unconscious" (2017a, p. 32). This imagination posits the Black Man, reduced to mere material energy, as the object of phantasms of horror and terror, as well as of projections of repressed desire, "of repulsion, of atrocious charm and perverse enjoyment" (2017a, p. 129). For Mbembe, the slave trade was fundamentally a "libidinal economy" (2017a, p. by the desire for and It on the basis of a of which that could be only in the experience of or in the of It was an of the of (2017a, p. of what Mbembe calls the of life to the power of Thus, racial represents the of a (2017a, this the Black is as the of a in the of shadows and a but never to the of (2017a, p. a that, the very possibility of thinking the world. And yet, in a figurative that on by Sony Labou Tansi and Mbembe the for that in this With his capacity for and with his capacity for "the of a (2017a, p. being reduced to a of through a he did not the finds a means to in the shadows of the Hence, the critical moment Mbembe in the genealogy of Blackness and race is the and of Blackness from an identity into a of The process of modernity has always been by the possibility of a slave that (2017a, p. resist "the the he on the (2017a, p. and reconstitute as responsible for and responsible the (2017a, p. from the of the in the and to the anti-colonial and the rich tradition of Black thought and and aesthetic posits the Black as which be or (2017a, p. The very notion of Blackness was transformed from a of into a of and into "a call to (2017a, p. 47). Blackness became "the through which people of African origin could to the world and on their own power and to as a (2017a, p. Mbembe's account of the of a Black that it many of an Afropolitan He it as the of a (2017a, p. that within a of and circulation (2017a, p. It was by the African encounter with and the tradition that serves Mbembe as an of the and multiple that rise to a capacity of to inhabit worlds at The modern Black this with the of most Mbembe traces of affirming the of the world, of reimagining the Black as on the and of a in the of (2017a, p. Mbembe is far from Black thought. For him, Black deeply tied to race. with the between affirming the to humanity and the idea of redemption through an emphasis on cultural such as and inscribed in an intellectual genealogy that the and race. With Africa as the of "the of the racial (2017a, p. they way to identity without racial (2017a, p. Mbembe is critical of the of which the colonial encounter to a of self and He emphasizes that and the very psychic by the desire for its This of the the unconscious in the as a he is denied in the Black the in a of (2017a, p. that reflects that were never to be of African is the not the of this psychic the background of these two critical in the genealogy of race, the notion of Black reason that Mbembe places at the of his book emerges as a deeply ambiguous "a of and built with race as its (2017a, p. It is through with a that reflects the very process of European modernity itself. It refers to and that the Black as a racial and thus to the consciousness of (2017a, p. original as well as to the of the consciousness of (2017a, p. original that the world and the one's place within It seeks to the first however, the of its of Black reason are deeply they are but two of the very the process of modernity and its over how to the human and the reason and the title Critique of Black Reason Mbembe to three of European modernity that were at the the of race became the of the modern global to subject reason and the process of to a that the conditions of knowledge independent of all experience. His project was against both the to and against from by a reason that its own Mbembe's account is not a does he conception of in his critical he to His critique of Black reason itself to a critique of the of reason in consciousness within the to a critique of to Black difference in Black Mbembe both and thus reason itself as it has European modernity, to a in order to the conditions for thinking the world in Mbembe's genealogy of race is motivated by the question of the demise of European power the of a question that he in the In the of the racial logic of and is The of forms of and into into into a humanity. The once on people of African origin is being This is what Mbembe calls the Black of the (2017a, p. original emphasis). It represents a critical moment in the and of the twin of Blackness and race, over and beyond the Atlantic slave trade and the birth of Black critical moment that links the racial past with a racial future. This is where Mbembe's latest Politiques de It starts from the and deeply that current the of democracy. In of large migratory the of the subject and the of the power of and have turned into into of that a on is to and rule in the form of a power that does not merely but the of the political order its a world of by the for the enemy. transform into of where serves as the social on a rereading of Mbembe shows in the of the of decolonization at the of the 20th has become the global and of The to is by the of and of that and an enemy means the to oneself, to be of the that may the of hidden and p. This is continuously terrorists, and They are not like at the they are not to become like that can be only through at the is denied and Thus, Mbembe we are in political p. in a sense where the enemy is not just a the enemy is the one who an to and may be Mbembe ultimately open the idea of a world, which is p. merely serves as a critical of current or it represents in p. However, he emphasizes that the to and is by no means a new For Mbembe, democracy at its core, always been to in of the of its It has its core to the and that represent the of its and its own p. where could be in its form, over and beyond any has always that a of by the desire for What is however, is that is no that serves as the of the enemy. the enemy is within themselves, like a in the of the And thus, in a process of p. the colonial legacy of and is against the of the colonizers It is this of the world into the subject p. original for Mbembe, for the of the very that for Fanon's social Mbembe sees it as an of a social that psychic to one's unconscious It is based on a form of that oneself from This and that in in and the to and p. for Mbembe, at the core of the current spirit of closure and It the of that the and conceives of in terms of a struggle to However, the Black as the racial subject does not to the of bodies

Purpose – The financial institutions have a significant contribution to foster economic growth of a country. This study has the intention to investigate the causal relationship between financial development institutions and economic growth in Tanzania. Design/methodology/approach – The study spans from 1989 to 2018. The article uses four proxy of financial development institutions against Gross Domestic Product (GDP) growth (Annual %). Financial proxy of variables of development institutions comprises Broad Money (% of GDP), Domestic credit for private sector (% of GDP), Domestic credit provided by financial sector (% of GDP), and Domestic credit to the private sector by banks (% of GDP). This study uses Autoregressive Distributed Lag (ARDL), Vector Error Correction Model (VECM), and Granger Causality test. Findings – The paper tries to find the cointegration effects and causal relationships between the proxy variables and economic growth in Tanzania. It indicates that the economic growth of Tanzania dominates financial development institutions. Therefore, economic growth in Tanzania leads to the growth of financial sector. The development of financial sector also gives way to rise in overall economic activity. It is a unidirectional relationship through which the proxy variables depend on economic growth in the country. Discussion – Tanzania government should invest more in the financial institutions in order to improve the economic growth in Tanzania..

<p><em>The article analyses theoretical foundations of the development of an inclusive society in Ukraine. It demonstrates significance of theoretical investigations by D. Acemoglu and J.A. Robinson</em> <em>into the development of inclusive political and economic institutions as established practices of an inclusive society. The article investigates methodological possibilities of a mono-causal </em><em>«</em><em>simple theory</em><em>»</em><em> approach, which D. Acemoglu</em><em> and J.A. Robinson use to clarify the main contours of economic and political development of different countries from the Neolithic revolution till now. The key idea of the two US scientists is that all the roots of poverty can be traced to politics and political processes. These topics form the subject of their analysis.</em></p> <p><em>We note that D. </em><em>Acemoglu</em><em> and J.A. Robinson maintain institutional point of view and argue that societies’ growth requires effective institutions. Inclusive institutions, such as property rights, access to markets, equality before the law, access to infrastructure, support for economic and social mobility, and investment in human capital are needed for economic development. By contrast, extractive institutions enable the appropriation of rent by privileged groups in society, i.e. the elites. These institutions only redistribute resources rather than supporting development. They discriminate and expropriate.</em></p> <p><em>D. Acemoglu and J.A. Robinson consider political institutions fundamental to economic growth. They divide these into inclusive and extractive institutions as well. For D. Acemoglu and J.A. Robinson, politics is the process of a society choosing the rules governing its activities, and political institutions are the key determinant in the result of the struggle for economic gain – the prosperity of a nation, groups or specific individuals. Political institutions determine who has power in society and what power can be used for.</em></p> <p><em>Inclusive political institutions are characterised by plurality – various interest groups affecting political decisions. Under such conditions, the control over life in the country cannot be concentrated within a narrow group. However, D. Acemoglu and J.A. Robinson also caution that sufficient centralization is required to prevent chaos in a wide plurality. Extractive political institutions allow a narrow circle of elites to concentrate political power and subordinate economic institutions to the task of collecting resources from the rest of society.</em></p> <p><em>The article emphasises the importance of D. Acemoglu and J.A. Robinson’s conclusion regarding the synergies between political and economic institutions. Inclusive political institutions with their wide distribution of power do not allow the usurping of power over economic institutions; and equitable distribution of resources encourages strengthening of inclusive political institutions (“inclusive society”). Such synergies are also inherent in extractive institutions.</em></p> <p><em>Four types of institutions create four possible institutional combinations. However, two combinations are typically reproduced: inclusive political and economic institutions, and extractive political and economic institutions. If there is a need to go beyond the bounds of extractive political and economic institutions, such opportunities arise at critical junctures, created by shock situations.</em></p> <p><em>The article emphasises the cautious nature of D. Acemoglu and J.A. Robinson’s conclusions regarding the ways of changing political institutions in society from extractive to inclusive ones, and their confidence in the contingent nature of history, which might create or not create inclusive political institutions. However, even in the context of contingency, inclusive political and economic institutions, if they appeared, would be more likely to be reproduced in history, forming a virtuous circle. There is also a vicious circle of extractive institutions.</em></p> <p><em>The article also considers the ignorance hypothesis approach as the foundation of the influence of western political elites. According to D. Acemoglu and J.A. Robinson, western politicians are convinced that the roots of the poverty problem lie in the lack of knowledge about generating prosperity among the poor countries’ elites. D. Acemoglu and J.A. Robinson emphasise that the overall perspective chosen by international organisations is false because they do not recognise the key role of political institutions.</em></p> <p><em>It is noted that D. Acemoglu and J.A. Robinson do not provide a programmatic answer to the question of how to create inclusive political institutions, instead emphasising that there is no recipe for the development of such institutions. There are factors that can contribute to their appearance: a significant level of centralisation that will not allow social movements that are trying to change the existing regime out of the boundaries of the law; availability of a broad coalition; civil society institutions that are able to coordinate the demands of the population so that  the </em><em>opposition movements</em><em> would not be easily crushed by existing elites or used by another group to establish their control over extractive political institutions.</em></p> <p><em>We conclude that under the conditions of contingency, the responsibility of the political elites for their chosen development strategies and tactics grows immeasurably. History is not a destiny: a vicious circle can be broken. The elections awaiting Ukraine can become the breakthrough to a prosperous inclusive society.</em></p>

China is often cited as a counterexample to the hypothesis that economic growth needs the support of certain basic legal institutions, such as strong protection of property rights and legal enforcement of contracts. The widespread legal informality in contracts among SOEs and in the way government has carried out regulation supports the claim that China in fact has lacked such growth-supporting legal institutions. Indeed, such legal informality may even have contributed to China’s economic growth by reducing transaction costs in contracts and administrative costs in government regulation. Correlation between legal informality and economic growth is not, however, the same as causation. Even if we could establish that such informality was an effective engine of China’s economic growth over the past three decades, past success does not guarantee anything for the future. China has changed as a result of economic growth. The range of actors involved in the Chinese economy and the stakes involved have dramatically increased. The state can no longer internalize the potential losses resulting from legal informality. The nature of potential risks and consequences of decisions made by market players and regulators have become more complicated. This complexity necessitates higher-quality information and more sophisticated skills for risk assessment and management. Under these new circumstances, legal informality is increasingly likely to generate decisions that do not fully incorporate associated risks or reflect necessary risk-control measures. Continued reliance on informality fails to provide sufficient incentives to individuals to acquire the information and skills required to assess and to manage risks involved in contracts and regulation. Individuals operating in such legal informality may resist reforms that would lead toward more rule-based and reason-based legal institutions because they are short of skills that are required in such a new regime. Executives of SOEs, legal professionals, and regulatory officials may be particularly likely to suffer in continued legal informality because they currently do not have enough incentives to develop the skills in dealing with complicated risks in the market. In a more developed and naturally complicated economy, legal informality is not only ineffective and inefficient, but also detrimental to those individuals at the center of legal institutions. The rest of this chapter is organized as follows. Section I introduces the concept of “legal informality” in the context of China’s legal development over the past three decades. Section II uses two examples to explain the legal informality in contracts among SOEs: (1) sales of non-performing loans (NPLs) by state-owned banks to state-owned financial asset management companies (AMCs), and (2) advances of loans by state-owned banks to the government’s land-stock authorities (LSAs) secured with land-stock mortgage (LSM). Section III illustrates informality in regulation, using the example of the regulatory approval process for initial public offerings (IPOs) in mainland China and Hong Kong. Section IV explains the potential cost-saving function of legal informality. Section V demonstrates the harm of legal informality in China’s new stage of economic development. A brief Conclusion follows, with comparison to the evolution of administrative systems in Japan in the twentieth century.

The severity of the last financial crisis for the European financial markets, the economy, and society makes the scientists and financial analysts start to seek answers with great openness not only to the question of how to reduce its negative effects in the future, but also of how the system regulating financial institutions will look like in the future. The article discusses three options of the positions on the future regulatory tendencies: theoretical alternative, option presented in reports and expert studies, and the version arising from observations of the current practices of functioning of the European banks. The aim of the article is to confront the views on the future trends in the regulation of the banking sector from theoretical, consulting point of view, and the view formulated on the basis of evalua-tion of banking practices.

The paper examines the role of various types of institutions on economic growth through capital formation and technological progress. The Solow residual is taken as a proxy of technological progress. The study uses panel data from twenty-one developing countries from the International Development Association. The sample period extends from 1990 to 2013. The institutions are categorized as economic, financial, political, and social institutions. The Solow growth model is the basic reference point of this study. The GMM panel estimation technique is applied due to the problem of endogeneity. The relationship between GDP per labor and institutions is explored through technology and stock of capital per labor. The results of this study show a significantly positive relationship between economic growth and economic, political, social, and financial institutions. Moreover, based on empirical results this study concludes that to achieve economic growth in developing countries, the government should strengthen its institutions and control the corruption, ethnic tension, injustice, terrorism, and intolerance in the society. The governments of developing countries should strengthen the financial and economic institutions to enhance growth via increasing investment in the country.

Broadening the Right to Acquire Capital with the Earnings of Capital: The Missing Link to Sustainable Economic Recovery and Growth

This article presents a proposal to broaden the right to acquire capital with the earnings of capital as a means of promoting sustainable economic recovery and growth. It would open the markets for real and financial capital acquisition more fully and competitively to poor and working people (1) to distribute more broadly the earnings of capital and (2) to profitably employ more capital and labor. Both the recession and the strategies advanced to promote economic recovery may be viewed as responses to the prospect of inadequate present and future earning capacity of both consumers and producers (1) to purchase what can physically be produced and (2) to repay existent and anticipated debt obligations. To increase the prospects of sufficient, sustainable earning capacity, the proposal advanced in this article would extend to all people the same protections and benefits presently provided by government that facilitate market transactions whereby capital is acquired with the earnings of capital primarily for well-capitalized people. Although in theory, all people in a market economy are able to acquire capital with the earnings of capital, reliable empirical data reveal that as a practical matter, the major determinant of the ability of individuals to acquire capital with the earnings of capital is the existing distribution of capital ownership. The theory of “binary” economic growth underlying this proposal holds that the market return on capital is positively related to the distribution of capital acquisition with the earnings of capital. The prospect of a broader distribution of capital acquisition with the earnings of capital carries with it the prospect of more broadly distributed earning capacity in future years, which in turn will provide the market incentives to profitably employ more capital and labor in earlier years. The idea that the broader distribution of capital acquisition with the earnings of capital will promote growth is not found in any of the widely accepted theories and models of economic growth such as those proposed by Schumpeter, Solow, Roemer, and Lucas. By opening to all people the institutions of corporate finance, banking, insurance, government loans and guaranties, and monetary policy (the very institutions presently relied upon by the Federal Government to stimulate the economy) the practical ability to acquire capital with the earnings of capital can be more broadly extended to all people with the result that greatly enhanced prospects for greater and more broadly distributed earning capacity and growth can be reasonably expected and realized by all.