Where do Institutions Come From?

By Sergei Guriev

The debate on the role of institutions has changed dramatically since ISNIE was established in 1996. Research on institutions has become part of economics mainstream. Qualitative and descriptive studies have been complemented by increasingly rigorous quantitative work applying modern and sophisticated econometric methods. Academics in general and ISNIE members in particular, have learnt a lot, not only about correlations but also about causal relationships. There are still many open questions: we do not have a consensus on measuring institutions, on quantitative importance of different kinds of institutions for growth and development and on the factors that may drive the heterogeneity of the impact of institutions. Yet, there is no longer any doubt that institutions are important for economic performance and social development. This leads to a key challenge for our Society – as we are certain that institutions matter we should also try to understand where the institutions come from. Given the importance of this question for policymaking, it must be addressed using research methods of highest academic quality, whether they are qualitative or quantitative studies.

The question of where institutions come from is certainly not new. We know that formal institutions are shaped by political choices. We also know that there are informal institutions, cultural and social norms that evolve through social interactions and changes in attitudes. Therefore the analysis of the formal institutions and that of the informal ones are both important. These two research agendas are not mutually exclusive, in fact, they are complementary. Informal institutions influence the effectiveness of formal ones – and therefore their determinants. Simultaneously, formal institutions provide threat points for informal institutions and thus affect their evolution as well. [...]

This post is the abbreviated version of an article written for the "Our field" section of sioe.org, which can be fully read here.