- Dependable Legal System
- Facilitates contracts
- Protects property from others including government.
- The legal system in some governments is so poor that no one knows who owns what. Example: In India, residents who purchase land may have to do so more than once because of lack of proper record keeping.
- Institutions of Economic Growth
- Competitive and Open Markets
- Encourage the efficient organization of resources.
- About half the differences in per capita income across countries is explained by a failure to use capital efficiently.
- Example: One study found that if India used its physical and human capital as efficiently as the U.S., India would be four times richer than it is today.
- Why do poor countries use their capital inefficiently?
- Inefficient and unnecessary regulations…
- Institutions of Economic Growth
China changed from collective farming to individual farming – Agricultural productivity increased dramatically. - Institutions and Growth Miracles Revisited
- China changed from collective farming to individual farming – Agricultural productivity increased dramatically.
- America inherited a tendency toward a market economy and democratic institutions from England.
- America’s open frontier and freedom encouraged new ideas and an entrepreneurial spirit.
- Institutions and Growth Miracles Revisited
- Industrial revolution
- Brought large scale production and important innovations in transportation.
- Centered in Britain, developed a strong culture of science and engineering.
- Brought the scientific method to bear on economic production.
- Profits were invested in new ideas and innovations so economic growth and improvements in standards of living continued.
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