Unbundling institutions
By: Daron Acemoglu [and] Simon Johnson
Contributors: Johnson, Simon; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 03-29; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 03-29.
Publisher: Massachusetts Institute of Technology, Dept. of Economics
Published: 2003
Place of publication: Cambridge, MA
Language: eng
Number of pages: 39
Description: This paper evaluates the importance of "property rights institutions," which protect citizens against expropriation by the government and powerful elites, and "contracting institutions," which enable private contracts between citizens. We exploit exogenous variation in both types of institutions driven by colonial history, and document strong first-stage relationships between property rights institutions and the determinants of European colonization strategy (settler mortality and population density before colonization), and between contracting institutions and the identity of the colonizing power. Using this instrumental variables approach, we find that property rights institutions have a first-order effect on long-run economic growth, investment, and financial development. Contracting institutions appear to matter only for the form of financial intermediation. A possible explanation for this pattern is that individuals often find ways of altering the terms of their formal and informal contracts to avoid the adverse effects of contracting institutions, but are unable to do so against the risk of expropriation. Keywords: Contracts, Economic Growth, Financial Development, Institutions, Law and Finance, Legal Formalism, Legal Origin, Political Economy, Politics, Property Rights. JEL Classification: E44, G18, K00, N20, P16, P17.
Notes: "July 2003."

Includes bibliographical references (p. 36-39).

Abstract in HTML and working paper for download in PDF available via World Wide Web at the Social Science Research Network.