Chapter

Institutions, Volatility, and Crises

Daron Acemoglu, Simon Johnson and James Robinson

in Growth and Productivity in East Asia

Published by University of Chicago Press

Published in print August 2004 | ISBN: 9780226386805
Published online February 2013 | e-ISBN: 9780226387079 | DOI: http://dx.doi.org/10.7208/chicago/9780226387079.003.0004
Institutions, Volatility, and Crises

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There is a growing consensus among economists that differences in institutions, in particular the enforcement of property rights, rule of law, and constraints placed on politicians and elites, have a first-order effect on long-run economic development. This chapter argues that institutions also have a first-order effect on short- and medium-run economic instability. It shows that societies with weak institutions for historical reasons have suffered substantially more output volatility and experienced more severe crises in output, exchange rates, and banking as well as political crisis over the past thirty years. It uses the mortality rates faced by European settlers as an instrument for institutional development and current institutions. It reveals a surprisingly strong relationship between these mortality rates and various measures of instability and crises during the past 30–40 years. This relationship reflects the effect of historically determined institutions (more specifically, institutions shaped by differential European colonization strategies and settlement patterns) on instability.

Keywords: institutions; economic development; economic instability; output volatility; mortality; political crisis; banking; exchange rates; colonization; settlement

Chapter.  14560 words.  Illustrated.

Subjects: Business and Management

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