Social Cohesion, Institutions, and Growth

POLICY AND institutional quality are to a large extent endogenous. While the truth of this statement is familiar to most development scholars, the implications of it have drawn relatively little empirical attention. Understanding more about this relationship matters, because ‘‘poor institutional quality’’ and ‘‘failure to implement better policies’’ are so frequently identified as the causes of growth collapses, endemic poverty, and civil conflict. Such explanations are logically (and properly) followed by calls to improve institutions and policies, but an implicit assumption in such calls is that realizing them is simply a matter of choice, technocratic skill, and/or sheer political will. Seasoned politicians and policy-makers of goodwill, however, characteristically encounter constraints that are at once more enduring and less tangible in nature. In this paper, we endeavor to address systematically the constraints to policy reform in developing countries by examining the strength and direction of the relationship between social structures, political institutions, and economic policies. Specifically, we argue that one of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘‘social cohesion’’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented. A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains. The inclusiveness of a country’s communities and institutions (e.g. laws and norms against discrimination) can greatly help to