Political institutions and stages of development: Investigating the context -dependent relationships of institutions and economic performance.

This dissertation argues that work in the New Institutional Economics has yet to live up to its promise. We have yet to specify with clarity the kinds of political institutions that matter and the circumstances in which they matter. Underlying this problem is a one-size-fits-all approach to political-economic modeling that assumes institutions have consistent effects across all counties and times. This dissertation breaks with that pattern in arguing that different growth states exist in which distinct challenges must be addressed for economic development to proceed. The economic efficiency of different institutional forms depends upon the nature of these challenges. The theoretical framework is built around two main ideas. First, the institutional outputs that matter for economic performance are of three types: state capacity, constraints on rulers, and the incentives of rulers. Second, unique growth states, or paradigms, exist in which the accumulation of factors that produce economic growth operates in a particular manner. The framework maps institutional outputs into expected effects on each of the factors of production for each growth state. One useful way to define growth states is to think of economic development as consisting of three stages: pre-industrial society, investment-based growth, and innovation-based growth. In pre-industrial society, the core economic challenges are fear of predation and small scope of markets. During investment-based growth, they are mobilization and coordination of investments and the absorption of new technology. In innovation-based growth, the chief challenges are fostering entrepreneurship and adaptation to technological change. Given these distinctive challenges, the institutional outputs most relevant for economic performance depend upon the stage of development. The resulting hypotheses are tested using a dataset covering 82 countries for the years 1960-2000. State authority is found to have a positive effect on economic performance in early stages. Constraints on rulers, conversely, are most relevant for fostering productivity growth among countries at the technological frontier and for supporting investment when social heterogeneity is high. Additionally, the effect of ruling coalition size on rulers' incentives is a function of the level of political competition. Small ruling coalitions harm productivity and capital stock growth when competition is low.PhDEconomicsPolitical scienceSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/126926/2/3287533.pd