Working Paper: NBER ID: w20636
Authors: Douglas A. Irwin
Abstract: In the Wealth of Nations, Adam Smith argues that a country's national income depends on its labor productivity, which in turn hinges on the division of labor. But why are some countries able to take advantage of the division of labor and become rich, while others fail to do so and remain poor? Smith's answer, in an important but neglected theme of his work, is the security of property rights that enable individuals to "secure the fruits of their own labor" and allow the division of labor to occur. Countries that can establish a "tolerable administration of justice" to secure property rights and allow investment and exchange to take place will see economic progress take place. Smith's emphasis on a country's "institutions" in determining its relative income has been supported by recent empirical work on economic development.
Keywords: No keywords provided
JEL Codes: B12; B25; B31; K2; O43; P14; P16; P48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| administration of justice (K40) | secure property rights (P14) |
| secure property rights (P14) | investment (G31) |
| secure property rights (P14) | economic activity (E20) |
| administration of justice (K40) | economic activity (E20) |
| secure property rights (P14) | economic growth (O49) |
| administration of justice (K40) | economic growth (O49) |