Explaining Institutional Change: on the Interplay between Internal and External Institutions

There is grow ing ev id ence tha t in s titu tions m a tter for econom ic grow th . If good ins titu tions can s pur grow th , then try ing to change form al or externa l in s titu tions accord ingly a lm os t s eem s to s ugges t its elf. Yet, externa l in s titu tions w ill on ly provok e the d es ired effect if they are effectively en forced . It is a rgued tha t the effectivenes s of externa l in s titu tions critica lly h inges on com plem en tary in terna l in s titu tions tha t help citiz ens to overcom e the problem of collective action . As s um ing tha t in terna l in s titu ions are ra ther s table, it is a rgued tha t s ocieties have a fa irly res tricted area w ith in w h ich they can im plem en t grow th -end ucing ins titu tiona l change.