Political, Economic and Social Institutions: A Review of Growt

This paper integrates North’s institutional framework with the notion of institutions in the augmented Solow growth model, to clarify the direct and indirect channels by which institutions influence growth. Four ways to extend the Solow model in order to incorporate a rôle for institutions are outlined; and growth regressions are reinterpreted in this light. A detailed typology of empirical institutional measures is provided, and, emphasising measures of institutional quality, evidence from the growth and institutions literature is reviewed. A substantial case is made for the need for a more structural multiequation modelling approach to determine the effects of diverse institutional measures on growth. The analysis underlines the important rôle of the state in facilitating the development and enforcement of complex, multi-agent and multi-period contracts, refraining from predatory actions which discourage saving, investment and production and in extending civil and political rights that promote the development of social capital.