Institutions Matter, but Not for Everything
THE DEBATE over the role of institutions in economic development has become dangerously simplified. The vague concept of “institutions” has become, almost tautologically, the intermediate target for all efforts to improve an economy. If an economy is malfunctioning, the reasoning goes, something must be wrong with its institutions. In fact, recent papers have argued that institutions explain nearly everything about a country’s level of economic development and that resource constraints, physical geography, economic policies, geopolitics, and other aspects of internal social structure, such as gender roles and inequalities between ethnic groups, have little or no effect. These papers have been written by such respected economists as Daron Acemoglu, Simon Johnson, and James Robinson; Dani Rodrik, Arvind Subramanian, and Francesco Trebbi; and William Easterly and Ross Levine.