Public Choice

, Volume 139, Issue 3–4, pp 371–387 | Cite as

Informal institutions rule: institutional arrangements and economic performance

Article

Abstract

Institutions are widely believed to be important for economic development. This paper attempts to contribute to our understanding of how institutions matter by examining the effect of formal and informal institutional arrangements on economic progress. Formal institutions represent government defined and enforced constraints while informal institutions capture private constraints. The findings suggest that the presence of informal institutions is a strong determinant of development. In contrast, formal institutions are only successful when embedded in informal constraints, and codifying informal rules can lead to negative unintended consequences. This suggests that institutions cannot be easily transplanted in order to spur economic development.

Keywords

Informal institutions Formal institutions Development Codification 

JEL Classification

F55 O17 

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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Economics DepartmentAppalachian State UniversityBooneUSA

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