Economics

Research conducted over the years has significantly indicated that the development of institutions inherently depends upon the level of economic growth within a particular country, specifically its GDP per capita ratio since the IMF in its report has conducted empirical analysis using that very variable. At the basis of it, one can conclude, employing theoretical concepts, that the relationship between economic growth and the development of institutions is extremely strong, however, when one attempts to delve deeper into that relationship is when things become murky in the sense that there can be a lot of reasons why the institutional development of a nation could be related to its economic prosperity and vice versa for example, when countries becoming economically stable, they tend to improve upon their institutions in order to further their economic goals whereas some nations inherently adopt the institutions left behind by their predecessors as is the case with colonies.

The case of colonies presents an extremely interesting viewpoint. It states that nations where colonization occurred heavily for the sole purpose of the settlers developing a firm stronghold within that particular nation lead to those nations being able to develop constitutionally sound institutions whereas nation which were colonized for the sole purpose of exploiting their natural resources were not able to learn from the settlers, developed in ways which induced prosperity to be held by only a select few, were eventually left with institutions that were inherently weak. The former case talks of British and European colonies while the latter can be attributed to Sub-Saharan colonies which never really developed in the true sense of the word. Thus history and geography have played an immensely important role in the development of institutions.

Hence, one can clearly stipulate that institutional changes have occurred slowly but surely over the past in accordance with the economic development of a particular country. That is why it can be clearly seen that developed countries now stand in positions of power based upon their concrete institutional development where as developing nations have inherently weak institutions which are reflected in almost every aspect of their economies. The distinction between bad and good institutions can be clearly signified by considering the type of policies that each enacts.

Primarily speaking, the formulation of an open trade policy as well as focus upon human capital formation in order to increase resource and factor productivity tends to lead towards higher economic growth. Such policies can also be categorized under the auspices of creating regulatory financial markets, decreasing volatility within the economy to foster foreign investment, strong legal and constitutional framework etc.

Lastly, countries that have seen rapid institutional reforms in the past decade or two have done so through various different means though it can be clearly see that there were a few generic points upon which amalgamation and commonness can be found. Firstly, countries have to promulgate the advent of trade openness and competition, specifically from international organizations. Secondly, censorship should be abolished at all costs thereby promulgating transparency and accountability at all levels of the institution. Lastly, it has been clearly seen that external affixes play an important role in regional institutional development. The biggest example that can be found is the inception and accession to the European Union model. This example can be further moved on to countries joining hands with organizations such as the WTO, IMF etc. These organizations help to build and improve upon institutions.