Working Paper: CEPR ID: DP2370
Authors: Dani Rodrik
Abstract: This paper opens with a discussion of the types of institutions that allow markets to perform adequately. While we can identify in broad terms what these are, there is no unique mapping between markets and the non-market institutions that underpin them. The paper emphasizes the importance of 'local knowledge', and argues that a strategy of institution building must not over-emphasize best-practice 'blueprints' at the expense of experimentation. Participatory political systems are the most effective ones for processing and aggregating local knowledge. Democracy is a meta-institution for building good institutions. A range of evidence indicates that participatory democracies enable higher-quality growth.
Keywords: institutions; economic growth
JEL Codes: O10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| democratic governance (D72) | economic stability (E63) |
| democracies (D72) | long-run growth rates that are more predictable (O49) |
| democracies (D72) | greater short-term stability (D15) |
| democracies (D72) | reduced volatility in economic outcomes (E32) |
| democracies (D72) | better handling of adverse shocks (E44) |
| democratic systems (D72) | enhanced economic resilience (F69) |
| participatory political regimes (D72) | more equitable economic growth (F62) |