The Last Instance: Are Institutions the Primary Cause of Economic Development?

T                      is founded on two propositions: ) Institutions matter, ) Institutions are endogenous. The central claim of ‘‘new institutionalism’’ is that institutions are a ‘‘deeper’’, ‘‘primary’’ cause of economic development. The theoretical program has been laid out by North (, p. ; italics supplied): ‘‘To make sense out of historical and contemporary evidence, we must rethink the whole process of economic growth... The primary source of economic growth is the institutional/organizational structure of a political economy...’’. Specifically, we learn that ‘‘Third World countries are poor because the institutional constraints define a set of payoffs to political/economic activity that do not encourage productive activity’’ (North, p. ). The quest for the last instance pervades economics. Thus, in a paper entitled, ‘‘Institutions Rule: The Primacy of Institutions...’’, Rodrik, Subramanian and Trebbi (, p. ; italics supplied) observe that ‘‘growth theory has traditionally focused on physical or human capital accumulation, and, in its endogenous growth variant, on technological change. But accumulation and technological change are at best proximate causes of economic growth’’. Acemoglou (a; italics supplied)