Macroeconomic Institutions and Development

Macroeconomic Institutions and Development

Bilin Neyapti

The book incorporates the essential elements of institutional theory and highlights the issues pertaining to the measurement of institutional characteristics and the empirical analyses involving such measurement. It provides the theoretical framework of and empirical evidence on fiscal institutions, covering budgetary rules and procedures as well as fiscal decentralization, and reviews the theoretical framework for monetary institutions such as central bank independence, currency boards, monetary unions and inflation targeting in addition to providing empirical evidence on their effectiveness. The role of bank regulation and supervision is also investigated. This path-breaking and original book will prove a fascinating read for a wide-ranging audience including academics, think tanks, international development agencies and policymakers within the fields of development, economics, heterodox economics and money, banking and finance.

Introduction

Bilin Neyapti

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

Extract

If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin. (Charles Darwin) Economic and financial developments of the past few decades offer a very rich environment for development economists. As the existing theories of economic development proved to be inadequate in explaining many developmental experiences, an institutional viewpoint started to dominate the search for a better understanding of the diverse experiences and complex processes of development in the world. An overview of the evolution of earlier development theories highlights the need for a new approach to understanding the process of economic development. After providing an overview of these theories, this book reviews the main pillars of institutional economics: transaction cost and collective action theories. This review also leads to an original attempt to formally model institutional evolution by combining these two theories within a dialectical framework. In view of the theory of institutional evolution, the book presents discussions on the main fiscal and monetary policy institutions, along with related evidence from countries’ diverse experiences. Hence, this book contributes to the literature by reconciling the new development economics framework with empirical findings on the relationship between macroeconomic institutions and outcomes. It thus constitutes source material for new development economics courses offered as a part of an economics syllabus. Adopting the institutional perspective, this book highlights the role of the government as the agent assuming the xiv Introduction xv role of a mechanism designer or social planner that delivers sustainable...