Democracy, Governance, and Growth

Stephen Knack, Editor
Foreword by Charles Cadwell
Demonstrates the importance of governance and social institutions to economic performance


For many decades, underdevelopment in much of the world was blamed variously on capital deficits, exploitation by rich nations, and market-distorting economic policies. The chapters in this volume provide much of the evidence underpinning a growing consensus among development and growth economists that successful economic development depends more fundamentally on the way societies are organized and governed. They argue that "good governance" is a prerequisite to sustained increases in living standards.

The difference between developmental success and failure in this view has little to do with natural resource availability, climate, aid, or developed nations' policies. Rather, it is largely a function of whether incentives within a given society steer wealth-maximizing individuals toward producing new wealth or toward diverting it from others. The chapters, seminal essays written by Mancur Olson and his IRIS Center colleagues, provide theoretical and/or empirical underpinnings for the emerging consensus that differences in the way governments and societies are organized have enormous implications for the structure of incentives faced by politicians, bureaucrats, investors, and workers, which in turn determines the level of a nation's material well-being.

Overall this volume applies tools and concepts from the "New Institutional Economics" to some of the major issues in economic development. It will be of interest to scholars and students of various disciplines—including political science, law, and sociology as well as economics—interested in the determinants of economic development and global economic change. The book will also be of interest to many aid practitioners, particularly those working in anticorruption and public sector reform issues.

Stephen Knack is Senior Research Economist, Development Research Group, the World Bank.

Praise / Awards

  • "This volume collects together a number of contributions that have been crucial in developing our understanding of just how important institutions are to economic development. While accumulation of physical, human and financial capital, labor time and the development of technology may be the proximate triggers of growth, this shifts the onus of investigation to what facilitates investment in machinery, education, knowledge, and promotes the extension of credit to entrepreneurs. Good policy is one sensible response. But while correct, even the best policy response requires an anchor in an institutional environment that promotes confidence on the part of investors that their commitment of scarce resources to projects that often bear their returns at some distant point in the future, stand a good chance of actually being realized. In this volume we are presented with empirical evidence to demonstrate that institutions matter in this context, and that their impact is applicable across a range of stages of development, and diverse cultural settings. Further, we find clear conceptual articulation of why it is that institutions should have such impacts. Finally, the contributions show that institutions of relevance are not confined purely to formal institutions enshrined in legal codes, but that informal values and social networks play a central role in long run economic progress. Together they constitute an important qualifier to any development strategy that focuses too narrowly on policy responses without considering the institutional environment in which such policy is implemented."
    —Johannes Fedderke, Gencor Professor of Economics, University of Witwatersrand
  • "To understand economic growth, we have to go beyond narrow economic factors to consider legal and political institutions. In the essays collected here, Steve Knack and his collaborators make important contributions to the measurement of institutional forces, notably to the quantification of the rule of law and contract enforcement."
    —Robert Barro, Robert C. Waggoner Professor of Economics, Harvard University
  • "Mancur Olson was one of the cleverest, quirkiest economists not to have won the Nobel Prize. His path-breaking ideas about the importance of institutions, both formal and informal, for economic prosperity fueled a remarkable burst of theoretical and empirical research by his colleagues and students. Steve Knack's valuable new volume brings together the highlights of this very fruitful period of collaboration."
    —Robert D. Putnam, Malkin Professor of Public Policy, Harvard University

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Copyright © 2003, University of Michigan. All rights reserved.

Product Details

  • 6 x 9.
  • 320pp.
  • 14 drawings, 41 tables.
Available for sale worldwide

  • Paper
  • 2003
  • Available
  • 978-0-472-06823-4

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  • $37.95 U.S.