“Institutions versus Policies: A Tale of Two Islands,” P.B. Henry and C. Miller (2009)

A research program associated with Daron Acemoglu has pointed out the enormous, long-lasting effects on institutions on growth; for instance, 18th century colonial decisions about legal systems appear to have an effect on economic outcomes to the present. In this short recent AER, Henry and Miller show, that the importance of institutions vis a vis policy can be overblown. In particular, they examine Barbados and Jamaica, two countries with identical colonial legal and political systems at independence. Since 1966, Barbados’ per capita income has grown 2.2% per year versus .8% in Jamaica, leading to a wide divergence at present. The discussion is only qualitative, but the authors show that the major difference between the two countries were the spouts of poor macroeconomic management in Jamaica, particularly under Manley. They also point out that economics has little to say about why economic stakeholders in some places can come to mutually beneficial consensus, whereas in other places economic crisis lead to suboptimal policy.


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