Institutions, Economic Performance and the Visible Hand

Institutions, Economic Performance and the Visible Hand

Theory and Evidence

Ashok Chakravarti

The book challenges the conventional wisdom on the determinants of economic performance and provides an alternative vision of the functioning of an economic system. The author provides a structured survey which critically evaluates the theory and evidence of neoclassical approaches to growth and development. He then skillfully integrates insights from the old and new institutional economics into an original and comprehensive vision of the relationship between institutions, growth and economic development.

Chapter 6: Institutions in Economic History

Ashok Chakravarti

Subjects: development studies, development economics, economics and finance, development economics, institutional economics


Modern economic growth finds its origins in Western Europe. This chapter considers some of the key factors that underpinned the beginnings of this growth in Western Europe and compares these with the reasons why other parts of the world remained relatively backward and undeveloped during the same period. The purpose of this comparison is to understand how the necessary institutions that form the basis for successful economic growth emerged. Maddison (2006) provides us with data on per capita GDP levels and growth rates for the major economic regions of the world since 1000 A.D. These enable us to identify the historical time period when the divergence between Western Europe and the other major economies of the world at that time began. The Asian region includes areas of the near East that were under the Ottoman Empire and India. The data below show that around 1000 A.D., the per capita income levels of all the major economic regions of the world were almost similar, with Table 6.1: Per capita GDP levels and growth rates – major regions (1990 international dollars) W. Europe Asia (excl. Japan) Per capita GDP 400 774 894 1024 1232 1974 450 572 575 571 575 543 Year 1000 1500 1600 1700 1820 1870 China 450 600 600 600 600 530 India 450 550 550 550 533 533 Average annual compound growth rates of per capita GDP 1000–1500 1500–1820 1820–1870 Source: 0.13 0.15 0.95 0.05 0.00 –0.11 0.06 0.00 –0.25 0.04 – 0.01 0.00 Maddison (2006: Appendix...

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