The Paradox of High Economic Growth Under Social Unrest Between 2000 and 2015 in Peru: An Institutional Approach

Abstract

During the 2000-2015 period, after having overcome economic crisis and armed conflict, Peru experienced high economic growth rates and a reduction in recorded poverty. Nevertheless, this positive economic development was accompanied by increased social unrest. Peru at the dawn of the new millennium became an arena for new types and intensities of social conflicts that reflected the limitations of the economic, social and political systems due to institutional precariousness. This paper studies the causes of the economic growth-conflict paradox by examining the Peruvian public sector and its institutional development. To this end, based on data from the National Survey of Households (ENAHO), an institutional quality index is calculated for each local region and analyzed along with data at a regional level about social conflicts provided by the Peruvian Ombudsman Office. An important finding is that those regions with lower institutional quality, despite their economic growth rate, tend to have more conflict. This suggests that the public sector was incapable of reinventing itself and making the most of the macro-economic success for the sake of the poorest. In this context, social unrest was the symptom of the detrimental outcomes of weak and poor quality of public institutions that could not arbitrate between the needs of private investment that fosters economic growth and the demands of wider society.