In recent years, historians, political scientists, and economists have become increasingly interested in the role played by institutions in the process of economic growth. Institutions can best be thought of as the laws, rules, and informal agreements within societies that both permit and bound economic or other types of social behavior. Formal institutions are politically determined. Examples would include labor laws, environmental laws, regulations governing the operation of banks and securities markets, laws governing the formation and dissolution of families, and other legally codified restrictions on the activities of individuals or corporate bodies. Formal institutions also include Constitutions and the various political decisionmaking processes they create.
Institutions can also be informal.
Informal institutions are not legally codified, but include norms and values that are culturally embedded. Examples would include norms and values related to honesty, civic mindedness, cooperation, group identity, and the like. The New Institutionalism argues that, all things being equal, societies that create institutions that clearly specify and enforce property rights, that ease the enforcement of contracts, and that force governments to make credible commitments to limit their ability to manipulate economic rules to their own advantage will achieve faster rates of growth than those that do not. The New Institutionalism has built an impressive theoretical edifice. In so doing, it has exerted a powerful influence in the fields of economics, history, political science, and sociology.