ABSTRACT
Cross-country analyses found that legal protection of property rights, limited
and efficient government and a relatively benign and uncorrupt bureaucracy are good, growth-promoting economic institutions (North, 1981; Easterly
and Levine, 1997). Secure property rights were found to be an essential pre-
condition for private investments in physical and human capital (Djankov et
al. 2002; 2003). We know what ‘good’ economic institutions are; but the
best way to achieve them is less clear (Kaufman and Kraay, 2004). Institu-
tions refer to the ‘rules of the game’ in a society that shape human interac-
tion by structuring incentives (North, 1990: 3-4). Institutions change over
time, but the direction of change is indeterminate. The idea that inefficient institutions are weeded out due to competition among organizations is not
supported by the historical facts. Some periods and countries have shown
growth, whereas others declined.
