Both Acemoglu and Johnson and Engerman and Sokoloff use historical colonization patterns as way to explain variation in institutional development and as a result, economic conditions. Acemoglu and Johnson contend that the type of legal system imposed by colonial powers has a strong effect on contracting institutions but little effect on property rights institutions. In addition, they claim that mortality rates for European settlers and population density in 1500 have a large effect on property rights institutions but no effect on contracting institutions (953). In contrast, Engerman and Sokoloff contend that the fundamental difference in new world economies is due primarily to their respective factor endowments (initial conditions). These initial conditions (climate, soil type etc…) determined the type of initial distribution of wealth and power (unequal hierarchies in colonies suited for crop growing and slave labor, and broadly homogenous and equal societies in colonies suited for small family-sized farms) that affected institutional development and thus economic development (44-45). Do we think that these measures are valid? Do we think that the conditions described in both pieces are really the same thing or do they conflict with each other? How do these arguments demonstrating that historical colonization patterns affect institutional development and economic development fit with the idea put forth by Levitsky and Murillo about the importance of institutional strength?
Both S&M and North employed typology in their analyses. In L&M's article, while it is analytically reasonable to dissect institutional strength into stability and enforcement, as they pointed out in the end, how to measure them remains unresolved. Some variables surely encompass both dimensions of institutional strength. For instance, why should the frequencies of the turnover of central bank presidents act as a proxy for enforcement instead of institutional stability? Moreover, how do we tell the difference between "institutional stability" and the normal evolution of institutions? L&M did provide some vivid cases, but when conducting empirical studies, especially the ones with the focus on large-N cross-country comparison, how can we really define the difference? Even if they can be operationalized into a continuous spectrum, we still need to define such distinction. Last but not least, though we may tell the stability and enforcement of a particular institution by examining the role of informal constraints, some information may be unavailable for researchers (e.g. Who are real power holders? Who are only the nominal rule writers?). This brings our attention to North's conceptual distinction between informal constraints and formal rules. While North indicated that his analysis mainly focuses on the formal rules, he still thoroughly explored the characters and functions of the informal constraints. The examples he provided are surely illustrative, but one problem is how we evaluated their effect in comparative studies. In other words, the question is: How do we operationalize culture as a factor in constraining human behaviors? Sometimes the use of culture can be quite problematic, as especially demonstrated by A&J and E&S' studies. As North argued that the American codes of action in part contribute to the prosperity of the US in the 19th century, he should note that some other cultural customs, like the Islamic ones, once contributed to similar scale of economic growth in human history. It is even unfair to implicitly argue one groups of informal constraints are "better" in inducing efficiency, which is even a much more elusive idea in his book.
As Levitsky and Murillo point out, a promising area for advancing research in institutional research programs is to relax the assumption that actors within institutions behave according to what the framework, often found in law, dictates. That is, as their Mexico and Argentina examples show, actors in institutions do not necessarily behave the way the institution was designed and they may even follow a different mandate. Inquiring why this is the case, argue the authors, may result in more fruitful results to understand institutions. However, for the authors, studies that are based on actors perceptions of the institution are not enough to understand what motives their behavior. Studies like Latinobarometro, for example need to meet, in their view, stronger methodological criteria. However, for Douglass North, an essential part of the institutions is overcoming the free-rider problem which necessarily leads to ask the question of what motivates the loyalty of the actors towards certain institutions. For North the answer lies in understanding the perception that actors have of the institution. Consequently, should we truly strive to measure actors' behavior within institutions in quantifiable manners? Or should we, in the context of understanding institutions, accept that perception is reality and therefore whatever the individuals perceive should be utilized towards greater comprehension of why institutions are the way they are? Even more, use perceptions as the starting point to design successful institutions?
The readings can be divided in two perspectives: one that has economic/ socio-economic success as a dependent variable (Krugman, North, Engerman & Sokoloff, and Acemoglu & Johnson), and the other with a dependent variable internal to institutions (Cooter and Levitsky & Murillo). A more detailled look at the first perspective points out that, although the four manuscripts all try to highlight or to explain economic/ socio-economic success, they have slightly different dependent variables: Krugman looks at the economic benefits of trade; North takes a more global perspective and analyzes economic or societal performance; Engerman & Sokoloff largely use the notion of inequality; and Acemoglu & Johnson look for the impact on economic growth/ financial development. (Of course, the absence of institutions in Krugman's text marks a sharp distinction with the others, as for the independent variable.)
With this framework in mind, the “dialogue” between Acemoglu & Johnson and Engerman & Sokoloff on the impact of geography raises different questions. Acemoglu & Johnson, considering the non-effect of latitude, conclude that there is no significant effect of geography on income per capita, on investment and on financial development; whereas for Engerman & Sokoloff, geographic factors could affect economic performance by influencing institutions (or vice versa). Are these different arguments complementary? Are the differences due to the definition of the dependant variable of each text? And/or to the treatment and definition of their independent variable?
While I found the Engerman and Sokoloff article interesting and plausible, I would like to see more research done in areas other than the Americas. Another student mentioned that perhaps their theory may also work in Asia; I am interested in seeing the theory applied to other countries that may not have such a strong Western European colonial history, perhaps looking at Central Asia (or the Middle East), where there are sparse land endowments, and weak institutions. It is areas of the world like Central Asia that make it difficult to swallow Engerman and Sokoloff's theory, unless it was modified to better incorporate colonial heritage (because arguably, the Soviet Union left its mark on the current institutions of Central Asia), or they include oil/natural gas resources as a caveat...? Clearly, my own ideas need to be thought out more thoroughly...
The idea of "unbundling" institutions from one monolithic entity into several smaller entities is worth examining, as it seems intuitively logical that different institutions have different effects on society. The Acemoglu and Johnson findings were intriguing, and I would like to see more research conducted on other institutions, not simply property rights and contracting, and if those institutions have any other discernable affects on society.
In a similar vein, I also found the Levitsky and Murillo article intriguing because it attempts to define the quality of institutions. I see the L&M and the A&J articles are two sides of the same coin, in that they are both deconstructing the idea of "institutions". Both articles shed light on how our ideas and perceptions of institutions need to shift in order to better understand the role they play in shaping societies.
Roughly speaking we have two groups of readings that either consider institutions as the exogenous factor or treat institutions as the endogenous factors in affecting political and economic development. North's book and the article written by Levitsky and Murillo (L&M) more or less treat institutions as the given in their analysis as they both posit that there are two types of institutions in the world (good vs. bad or strong vs. weak) without fully explaining the source of variations. Yet how do different types of institutions come into existence? How can we explain the evolution of institutions with different effects on development and with different degrees of strength? Other two articles take this task over to explain the divergence in institutional development and evolution, which suggests that institutions should be treated as endogenously situated in the theoretical accounts. They took different approaches for the same matter. In AJ's work, they ambitiously employed a large-N analysis to illustrate how property rights institutions matter more, compared with the contracting institutions, in encouraging economic growth. For instance, taking the colonial heritage into account, they find the variations in the British and French rules. Yet it seems like they assume the equal enforcement in all countries they analyze. It is even not clear why they think colonial heritage matters more in shaping the contracting institutions but not the property right ones. More crucially, the affecting mechanism of contracting institutions is far less explained compared with the effect of property rights institutions. Since North treat both contracts and property rights equally matter for economic growth, AJ should fill in the theoretical story to prove that why contracting institutions matter less and how that relate to the colonial heritage. ES applied comparative historical analysis in their research and provided us with rather compelling explanations. One thing I found their work interesting, compared with A&J's article, is that they downplayed colonial national heritage as the independent variable for institutional development by focusing on explaining how factor endowments led to variations in the forms of economic production and the degree of inequalities in various societies, which heavily affected the formation of political institutions that in turn consolidated such inequalities. Their findings may be applied to other cases that were under the same European rule but ended up at different levels of economic development (e.g. Malaysia and Hong Kong). Nevertheless, though they delivered huge effort in clarifying the relationship between factor endowments, institutions, and inequality, how less institutionalized inequality encouraged more economic growth, facing the dawn of industrial revolution, remains unclear. Table 7 can even be summarized into the categories of colonial economies they propose. Also, it seems like they did not take time into the account. Will the length of being under the colonial rule have an effect?
Both Acemoglu and Johnson and Engerman and Sokoloff use historical colonization patterns as way to explain variation in institutional development and as a result, economic conditions. Acemoglu and Johnson contend that the type of legal system imposed by colonial powers has a strong effect on contracting institutions but little effect on property rights institutions. In addition, they claim that mortality rates for European settlers and population density in 1500 have a large effect on property rights institutions but no effect on contracting institutions (953). In contrast, Engerman and Sokoloff contend that the fundamental difference in new world economies is due primarily to their respective factor endowments (initial conditions). These initial conditions (climate, soil type etc…) determined the type of initial distribution of wealth and power (unequal hierarchies in colonies suited for crop growing and slave labor, and broadly homogenous and equal societies in colonies suited for small family-sized farms) that affected institutional development and thus economic development (44-45). Do we think that these measures are valid? Do we think that the conditions described in both pieces are really the same thing or do they conflict with each other? How do these arguments demonstrating that historical colonization patterns affect institutional development and economic development fit with the idea put forth by Levitsky and Murillo about the importance of institutional strength?
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ReplyDeleteBoth S&M and North employed typology in their analyses. In L&M's article, while it is analytically reasonable to dissect institutional strength into stability and enforcement, as they pointed out in the end, how to measure them remains unresolved. Some variables surely encompass both dimensions of institutional strength. For instance, why should the frequencies of the turnover of central bank presidents act as a proxy for enforcement instead of institutional stability? Moreover, how do we tell the difference between "institutional stability" and the normal evolution of institutions? L&M did provide some vivid cases, but when conducting empirical studies, especially the ones with the focus on large-N cross-country comparison, how can we really define the difference? Even if they can be operationalized into a continuous spectrum, we still need to define such distinction. Last but not least, though we may tell the stability and enforcement of a particular institution by examining the role of informal constraints, some information may be unavailable for researchers (e.g. Who are real power holders? Who are only the nominal rule writers?). This brings our attention to North's conceptual distinction between informal constraints and formal rules. While North indicated that his analysis mainly focuses on the formal rules, he still thoroughly explored the characters and functions of the informal constraints. The examples he provided are surely illustrative, but one problem is how we evaluated their effect in comparative studies. In other words, the question is: How do we operationalize culture as a factor in constraining human behaviors? Sometimes the use of culture can be quite problematic, as especially demonstrated by A&J and E&S' studies. As North argued that the American codes of action in part contribute to the prosperity of the US in the 19th century, he should note that some other cultural customs, like the Islamic ones, once contributed to similar scale of economic growth in human history. It is even unfair to implicitly argue one groups of informal constraints are "better" in inducing efficiency, which is even a much more elusive idea in his book.
ReplyDeleteAs Levitsky and Murillo point out, a promising area for advancing research in institutional research programs is to relax the assumption that actors within institutions behave according to what the framework, often found in law, dictates. That is, as their Mexico and Argentina examples show, actors in institutions do not necessarily behave the way the institution was designed and they may even follow a different mandate. Inquiring why this is the case, argue the authors, may result in more fruitful results to understand institutions. However, for the authors, studies that are based on actors perceptions of the institution are not enough to understand what motives their behavior. Studies like Latinobarometro, for example need to meet, in their view, stronger methodological criteria.
ReplyDeleteHowever, for Douglass North, an essential part of the institutions is overcoming the free-rider problem which necessarily leads to ask the question of what motivates the loyalty of the actors towards certain institutions. For North the answer lies in understanding the perception that actors have of the institution. Consequently, should we truly strive to measure actors' behavior within institutions in quantifiable manners? Or should we, in the context of understanding institutions, accept that perception is reality and therefore whatever the individuals perceive should be utilized towards greater comprehension of why institutions are the way they are? Even more, use perceptions as the starting point to design successful institutions?
The readings can be divided in two perspectives: one that has economic/ socio-economic success as a dependent variable (Krugman, North, Engerman & Sokoloff, and Acemoglu & Johnson), and the other with a dependent variable internal to institutions (Cooter and Levitsky & Murillo). A more detailled look at the first perspective points out that, although the four manuscripts all try to highlight or to explain economic/ socio-economic success, they have slightly different dependent variables: Krugman looks at the economic benefits of trade; North takes a more global perspective and analyzes economic or societal performance; Engerman & Sokoloff largely use the notion of inequality; and Acemoglu & Johnson look for the impact on economic growth/ financial development. (Of course, the absence of institutions in Krugman's text marks a sharp distinction with the others, as for the independent variable.)
ReplyDeleteWith this framework in mind, the “dialogue” between Acemoglu & Johnson and Engerman & Sokoloff on the impact of geography raises different questions. Acemoglu & Johnson, considering the non-effect of latitude, conclude that there is no significant effect of geography on income per capita, on investment and on financial development; whereas for Engerman & Sokoloff, geographic factors could affect economic performance by influencing institutions (or vice versa). Are these different arguments complementary? Are the differences due to the definition of the dependant variable of each text? And/or to the treatment and definition of their independent variable?
While I found the Engerman and Sokoloff article interesting and plausible, I would like to see more research done in areas other than the Americas. Another student mentioned that perhaps their theory may also work in Asia; I am interested in seeing the theory applied to other countries that may not have such a strong Western European colonial history, perhaps looking at Central Asia (or the Middle East), where there are sparse land endowments, and weak institutions. It is areas of the world like Central Asia that make it difficult to swallow Engerman and Sokoloff's theory, unless it was modified to better incorporate colonial heritage (because arguably, the Soviet Union left its mark on the current institutions of Central Asia), or they include oil/natural gas resources as a caveat...? Clearly, my own ideas need to be thought out more thoroughly...
ReplyDeleteThe idea of "unbundling" institutions from one monolithic entity into several smaller entities is worth examining, as it seems intuitively logical that different institutions have different effects on society. The Acemoglu and Johnson findings were intriguing, and I would like to see more research conducted on other institutions, not simply property rights and contracting, and if those institutions have any other discernable affects on society.
In a similar vein, I also found the Levitsky and Murillo article intriguing because it attempts to define the quality of institutions. I see the L&M and the A&J articles are two sides of the same coin, in that they are both deconstructing the idea of "institutions". Both articles shed light on how our ideas and perceptions of institutions need to shift in order to better understand the role they play in shaping societies.
Roughly speaking we have two groups of readings that either consider institutions as the exogenous factor or treat institutions as the endogenous factors in affecting political and economic development. North's book and the article written by Levitsky and Murillo (L&M) more or less treat institutions as the given in their analysis as they both posit that there are two types of institutions in the world (good vs. bad or strong vs. weak) without fully explaining the source of variations. Yet how do different types of institutions come into existence? How can we explain the evolution of institutions with different effects on development and with different degrees of strength? Other two articles take this task over to explain the divergence in institutional development and evolution, which suggests that institutions should be treated as endogenously situated in the theoretical accounts. They took different approaches for the same matter. In AJ's work, they ambitiously employed a large-N analysis to illustrate how property rights institutions matter more, compared with the contracting institutions, in encouraging economic growth. For instance, taking the colonial heritage into account, they find the variations in the British and French rules. Yet it seems like they assume the equal enforcement in all countries they analyze. It is even not clear why they think colonial heritage matters more in shaping the contracting institutions but not the property right ones. More crucially, the affecting mechanism of contracting institutions is far less explained compared with the effect of property rights institutions. Since North treat both contracts and property rights equally matter for economic growth, AJ should fill in the theoretical story to prove that why contracting institutions matter less and how that relate to the colonial heritage. ES applied comparative historical analysis in their research and provided us with rather compelling explanations. One thing I found their work interesting, compared with A&J's article, is that they downplayed colonial national heritage as the independent variable for institutional development by focusing on explaining how factor endowments led to variations in the forms of economic production and the degree of inequalities in various societies, which heavily affected the formation of political institutions that in turn consolidated such inequalities. Their findings may be applied to other cases that were under the same European rule but ended up at different levels of economic development (e.g. Malaysia and Hong Kong). Nevertheless, though they delivered huge effort in clarifying the relationship between factor endowments, institutions, and inequality, how less institutionalized inequality encouraged more economic growth, facing the dawn of industrial revolution, remains unclear. Table 7 can even be summarized into the categories of colonial economies they propose. Also, it seems like they did not take time into the account. Will the length of being under the colonial rule have an effect?
ReplyDelete