13 - Do Improvements of Institutions Harm Development?

Summary

The first difference to institutional variables is negatively correlated to economic growth, indicating that people see institutional change as uncertainty. The relevant part of the large literature on the effect of uncertainty on growth is surveyed. The transition represents the necessary institutional changes that cause the smallest costs possible. However, institutional changes are often much larger than necessary. Thus, they are much more harmful to economic development than they need to be. The orders of magnitudes are assessed. It appears that the excess changes in institutions in many countries contribute considerably to the rareness of miracle growth.