ABSTRACT
Institutions matter enormously for development. While some development economists have emphasized the roles of resource endowments aff ecting specialization and trade (the “vent for surplus theories” in Myint, 1971), of geography aff ecting health and access to the sea for trading (Gallup and Sachs, 1999; Krugman, 1995), and of technological innovations for productivity growth adapted to relative factor scarcities
(Solow, 1956; Hayami and Ruttan, 1985), all would agree that institutions matter. Controversies over their roles are often overblown by building paper tigers. The roles of resources, geography, technology, and institutions are more a matter of balance and complementarities than of substitutions. Recognizing the role of institutions in development is certainly not new, but greater emphasis and better understanding have recently been given to the subject with theoretical developments in the “New Institutional Economics” (NIE) (North, 1990) and empirical analyses trying to more rigorously identify the direction of causalities between institutional choices and development outcomes (as, for example, in Acemoglu et al., 2002).
