Question

a) Utilising the framework of Acemoglu, Johnson and Robinson (2005), critically analyse the role of institutions in economic development

Answer 1

Institutions play a very important role in the economic development. An institution is a complex organization which contributes in the economic development. For the same, there are two types of institutions i.e. Social and Economic.

1. Institutions increase the standard of living and helps motivate people to work passionately for the country. Although, the development can only happen if people have the willingness to do so, otherwise it’s not possible.

2. Institutions have a major role in determining the rate of capital formation and all the technological change and the ownership standards. These all are promoted so well and thus it has led to the economic development.

3. Institutions have enabled FDI in many parts of the world. It had helped the flow of investments will helps grow the economies. FDI’s are good for the economies especially the developing economies. Foreign Direct Investments enable the inflow of technologies and human capital along with the skills. This creates growth in the economy. Countries generally do Foreign Direct Investments and accept it also (Both ways). Foreign Direct Investments can generate the economic development that provides the wealth that allows for later improvements in environmental standards. FDI promotes growth in recipient countries as well. It promotes the business that means greater access to the market and environment which actually means greater profits and thus growth.