What Makes Poor Countries Poor?: The Role of Institutional Capital in Economic Development

Abstract

Casual scrutiny of the tables of economic and social indicators appended to each annual World Bank Development Report quickly reveals vast and enduring disparities in wealth and well-being amongst the countries of the world. The size and persistence of these enormous disparities pose a major challenge for economists and others concerned with theories of development. With increasing mobility of international resources, the success stories of the more rapidly developing economies would seem to be readily replicated; however, divergence rather than convergence seems the more common phenomenon. In explaining the dramatic differentials in rates of economic growth, a major paradigm shift appears to have occurred in the thinking of those concerned with theories of development and in the international economic agencies. It comprises two elements: a greater reliance on private markets as the drivers of economic development; and an enhanced concern with the quality of public sector governance institutions. Contact the Law and Economics Program at Boalt Hall, UC Berkeley, Berkeley, CA 94720 for a copy of this paper.

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