Institutions and Development

Institutions and Development

Advances in New Institutional Analysis series

Mary M. Shirley

A landmark contribution to our understanding of economic development. This significant book argues that fundamental changes in deeply rooted institutions do not happen because of outsiders’ money, advice, pressures, or even physical force; which explains why foreign aid has not, and can not, improve institutions. The impetus for changing institutions must come from within a society, and the author shows how groups of local scholars contribute to institutional change and development when the political opportunity presents itself.

Chapter 8: Where Do We Go From Here?

Mary M. Shirley

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


Enormous funds have been spent to spur development, and major increases in aid have been pledged. Yet recent research shows no correlation between aid and growth in per capita GDP, and no correlation between aid and policy reform. Both the history of foreign aid and economic research suggest that the largest barriers to development arise from institutions – the norms and rules of the game. When existing institutions are inappropriate or hostile to beneficial reforms, institutional change is a prerequisite to success. Yet little research currently exists on the dynamics of institutional change, and most analyses treat institutions at a high level of abstraction. Foreign aid does not promote sustainable institutional change, and little is known about what does. Although new institutional economics has added realism to economic models, far more specific analysis is needed to understand how countries overcome the institutional barriers to development. Where do we go from here? Comparative case studies are one way to discover the determinants of reform without sacrificing necessary institutional details. The case studies of reform in the Buenos Aires and Santiago water systems in Chapter 6 suggest that the extent of detail required to understand institutional dynamics is considerable, but manageable. Unfortunately case studies have a bad and not entirely undeserved reputation as sui generis, unscientific, devoid of theory, and unworthy of publication in top academic journals. Comparative case studies that overcome these faults are costly and require disciplined team commitment so it’s not surprising that there are only...

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