Both are feasible, however for the ever sustain institution - institutional quality lead to higher growth

Another point of view is that this good situation of institutional´s quality is in part one result of the high quality of leaders with patient labour.

Thank you very much for the answers. I agree with Nithyashree and currently developing that line. But Robert is right to indicate the role of leadership. Have a nice day!

Thanks a lot, Isaac. For me, the most important think is search the correct balance between propositions that are already greatly aligned.

I agree with you and I hope to soon publish research on this topic for mexico.

Is there any joint decisions here - like choosing an institutional practice that will lead to higher growth?

I think you raise an interesting question and I understand that assumes that institutional development leads to higher economic growth.

I think that the informal aspect of institutional quality increases with the level of economic development (adaptively), whereas formal institutions eventually (not always very efficiently) adjust to these developments as a result of (or to avoid) some tension arising due to inconsistency among the formal and informal institutions. Unless adaptive as such, the changes in formal institutions are usually not sustainable (or enforceable).

I think that the informal aspect of institutional quality increases with the level of economic development (adaptively), whereas formal institutions eventually (not always very efficiently) adjust to these developments as a result of (or to avoid) some tension arising due to inconsistency among the formal and informal institutions. Unless adaptive as such, the changes in formal institutions are usually not sustainable (or enforceable).

It is extremely important the distinction that you make between formal and informal institutions and how they intertwine. Initially I was thinking only of formal institutions.

I would argue that institutions and economic activities co-evolve over time. And therefore "attempts at establishing causality – to what extent institutions are created through demand-pull or supply-push – can therefore easily run into a chicken-and-egg type of problem." For example the mercantilist view of institutions was, from very early on, that institution-building was fundamentally a demand-pull phenomenon, that the mode of production of a society would determine its institutions. E.g. "‘It is known that a primitive people does not improve its customs and institutions, later to find useful industries, but the other way around’'. Thus, "it would not be meaningful to attempt to understand the institutional development of Europe independently of the underlying strategy

of industrialization that prompted the establishment of so many key institutions."

Dear Isaac, I think at best go to Daron Acemoglu's homepage, there you find an answer for your questions or better in his a papers which are downloadable. I think he the leading researcher in this field. See

http://economics.mit.edu/faculty/acemoglu/paper

Dear Peter thanks for the link!

In line with what you mention Paul, for me are important the effects on investment.

Along the lines of Zinabu's comment, institutions and growth co-evolve in response to more fundamental causes. See e.g. "Modernization, Specialization, and the Co-evolution of Agricultural Institutions."

http://dlc.dlib.indiana.edu/dlc/bitstream/handle/10535/142/Modernization,_Specialization,_and_the_Coevolution_of_Agricultural_Institutions.pdf;jsessionid=ED3E2602DBE82B852843296462A544B7?sequence=1

An interesting paper is Do Institutions Cause Growth? by Glaeser, Laporta, Silanes and Shleifer, published in the J. Econ Growth. They argue that education is the key, good policies follow and finally good institutions emerge

Thanks Luis, I will read the paper.

Regarding the paper Luis recommended to read, here is the free downloadable version from the NBER.

http://www.nber.org/papers/w10568.pdf

I fear otherwise you have to pay for the download from the JEG.

Thanks Peter for the link!

The debate referred to by Glaeser et al. is about what has caused institutions and economic growth (history) as opposed to how to cause them (development economics). In the Glaeser view, good polices (often put in place by dictators) lead to human capital and economic growth, which tend to induce better political institutions. This view is more sanguine regarding the productivity of economists, who can whisper recommendations in the metaphorical despot's ear. Acemoglu and Robinson (Why Nations Fail) are more nihilistic: Latin America, for example, was cursed by resources that were easy to predate and ended up with predatory political institutions that impeded growth. North (of Mexico) America, in contrast, was "blessed" by scarcity and had to adopt political institutions based on property.

There is no doubt that appropriate institutions are required for economic growth. See Chapter 12-13 of Millerbillr.com and other chapters on how institutions are required for economic growth.

Economic growth only occurs when there is an adequate market infrastructure and efficient markets will not develop without appropriate institutions of education (formal and informal) for managers, institutions that can provide risk capital, and legal institutions for regulation of corruption, freedom of contract, and safety of consumers. Thus, a multidimensional development model is needed; and very few have been available. Again, I refer you to www.millerbillr.com for a model that works.

I take into account your recommendation, thanks!

From my point of view, we can talk about a virtuous circle here. a better quality institutional framework leads to economic performance, as well as higher growth positively influence the social preference for better and better institutions, without taking into account the temporary political reluctance. an empirical evidence across EU you can find here http://store.ectap.ro/suplimente/Finantele%20si%20stabilitatea%20economica_Finante_en2010.pdf ...... starting from page 322.

Thanks Gabriel for the link!

I agree with the view of a central role for human capital. But how to get it? TWSchultz, 1964, Transforming Tradtional Agriculture, emphasizes the role of government for the succes of agricultural R&D, service and extension stations in Europe , USA and Australia. Without tax money we will have insufficient human capital as admitted by Wolfensohn at the end of his period as Worldbank president. Robert Lucas, at the end of his 1988 'The Mechanics of Economic Growth' states that even in the richest private US universities most of the money going around is government money. If they understand the big role of the government in Chicago it can hardly be false. Why then do we not get much human capital in many countries? Schultz argued that basic education and basic research are public goods. Everybody wants to free ride rather than paying taxes to finance them. Ziesemer 1990 in Oxforf Economic Papers hs formalized that. You need the political power of the government to get tax money for education and research. Also for higher education families with kids would not be able to afford this alone. In the 1980s Robert Heller, full professor and author of a textbook in International Trade, was asked why he had preferred to become President of one of the Federal Reserve Banks. His answer was that the salary as a full professor is not enough to pay the university fees for his kids. Education financing is key. The UK has raised the fees recently and now have 9% less enrolments. After five years or so this will be about 5% less labour supply. For any developed country with the current and future scarcity of skilled labour supply this will be a disaster. The UK , however, will most likely import engineers from India. Germany and China will keep the strong role of the government in education. Those who follow the UK will have a nice day today and fall behind tomorrow.

Many thanks to Thomas Ziesemer for an excellent review of some important literature on human capital. For a case study I recommend a search on keywords-agribusiness teaching center Armenia

Hi! This paper have a good review of the literature linking institutional quality and economic growth: http://www.merit.unu.edu/publications/wppdf/2012/wp2012-033.pdf

The debate about whether Institutions cause growth or growth brings better institutions still open. But in this work you will find reviews of various authors who support both viewpoint

I hope will be useful!

Thanks Maria!!

Good question, Rohitha! I think that higher institutional quality is one condition sine qua non. Or so, I´m not worried with results in few weeks or months after some kind of investment in people. In the long turn, this kind of actions, united with good people management (like empowerment and motivation) are fundamental to the business.

I agree with the point of view from Gabriel. This virtuous circle is something supposed to happen in the knowledge society.

There are, among many others, two interesting papers on this issue:

- Rodrik, D.; Subramanian, A. & Trebbi, F. (2004), 'Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development', Journal of Economic Growth 9, 131-165.

They show that institutions causally affect economic development. Interestingly, geography and trade integration do not turn out the be important factors. However, in the same journal

- Glaeser, E. L.; Porta, R. L.; de Silane, F. L. & Shleifer, A. (2004), 'Do Institutions Cause Growth?', Journal of Economic Growth 9(3), 271-303.

argue that rather than institutions, human capital seems to be the driving factor behind economic growth.

What can we learn now? I guess there is at least no evidence that institutional improvments hamper economic development. And a better rule of law, etc. have some merit for themselves (similar to education and human capital).