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Creating constituencies for reform

Why is underdevelopment so persistent? A growing consensus in recent years suggests this is because poor countries lack the institutions needed for economic growth. Implicit in this consensus is the notion that, first, specific institutions do matter, and second, institutional endowments are extremely hard to change.

It is, however, very hard to tell institutions apart from the constituencies behind them. In particular, what is attributed to the immutability of institutions may instead be due to the persistence of constituencies behind those institutions – the groupings in society that demand the institutions and have the power to obtain them.

This then leads to the question of why constituencies are so persistent. One possible explanation this paper focuses on is that constituencies are largely determined by factor endowments, and in the equilibrium poor societies find themselves in, these endowments are particularly difficult to change.

On the one hand, such an analysis offers hope that the destiny of societies is not preordained by the institutions they inherited through historical accident, on the other hand it suggests we need to understand better how to alter factor endowments when societies may not have the internal will to do so.

That's Raghu Rajan and Luigi Zingales. Read their paper, Creating Constituencies for Reform. HT New Economist.

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