title: The role of institutions in explaining economic growth
Creators: name: Kekic, Irma
Publisher: name: :none
Year: 2017

description: Seit dem Erlangen der Unabhängikeit haben Nachfolgestaaten des ehemaligen Jugoslawiens unterschiedliche Wege in Wirtschaftswachstum und Entwicklung eingeschlagen. Für den Unterschied zwischen Bosnien-Herzegowina und Montenegro, Länder mit ähnliche Grundvorraussetzungen innerhalb des ehemaligen Jugoslawiens, liefern Entwicklungstheorien kulturellen und geographischen Schwerpunktes keine angemessene Erklärungsgrundlagen. Über die Anwendung neuer institutionaler Ökonomie untersucht diese Arbeit das Verhältnis zwischen Wirtschaftswachstum und der Qualität von Institutionen anhand von good governance. Anwendung findet eine Kombination qualitativer und quantitativer Methoden bei der Werte der Worldwide Governance Indikatoren mit dem Pro-Kopf-Bruttoinlandsprodukt der Länder verglichen werden. Die Ergebnisse belegen ein stabiles aber schwaches Gleichgewicht in Bosnien-Herzegowina auf Grund der ineffizienten politischen Institutionen als Resultat des dreijährigen Krieges.
description: Since gaining independence, successor states of the former Yugoslavia have undertaken different paths in economic growth and development. This thesis looks to specifically explain the divergence in economic prosperity in Bosnia-Herzegovina and Montenegro, two countries which shared similar initial conditions within the former Yugoslavia. The approach taken in explaining the divergence is in line with New Institutional Economics (NIE), which focusses on institutions, as the determinant for economic growth. Under the school of NIE, a country’s political institutions determine its economic institutions. This paper looks at the political environment in both Bosnia-Herzegovina and Montenegro and concludes that Bosnia-Herzegovina’s political institutions, namely the Dayton constitution, are in need of reform in order to improve the country’s economic institutions and economic growth. It is argued that a reform of the constitution, which was introduced as an annex to the Dayton peace agreement to end the country’s brutal three-year war, would in turn allow reforms necessary for development to be implemented more efficiently. This is due to the fact that the complicated constitutional structure hinders effective decision-making and the implementation of much needed reforms in the highly decentralised country. Examining which specific institutions are important for economic development is not clear-cut, and different contributors to NIE argue for the relevance of different institutions in explaining growth and development. As this thesis is inspired by the work of Acemoglu and Robinson in Why Nations Fail: The Origins of Power, Prosperity, and Poverty, the institutions argued as important by these two contributors, who were themselves inspired by the work of Douglass North, are taken as prime. These include examining how well both countries protect property rights and enforce the rule of law. Moreover, the work of Acemoglu and Robinson is the focus of this study due their examination of the cause for different levels of economic prosperity in countries which share a similar history, geography and culture. As Bosnia-Herzegovina and Montenegro are highly similar, and were even part of the same country for hundreds of years, the application of this theory in this context is seen as highly relevant.The methodology used in this paper, to evaluate the applicability of NIE in the context of Bosnia-Herzegovina and Montenegro, is an examination of the score of both countries under the Worldwide Governance Indicators against their gross domestic product per capita (GDP). These reason for using this index in particular, which includes indicators such as rule of law, control of corruption, political stability and absence of violence/terrorism is due to it providing a comprehensive overview of indicators of good governance which is the policy-sphere and real-life application of NIE. Good governance is supported by international organisations such as the World Bank, International Monetary Fund (IMF) and UN. In turn, the WGI is complemented by additional indicators such as protection of property rights from the 2017 Index of Economic Freedom from The Heritage Foundation. Overall, the combination of these indicators is justified as providing an adequate overview of a country’s political and economic institutions and how they affect overall economic performance as per the theory of Acemoglu and Robinson.