Chapter 8: Where Do We Go From Here?
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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