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The Relationship between Institutional Efficiency and Economic Growth from the New Institutional Economics Perspective


Journal: Scientific Annals of the “Alexandru Ioan Cuza” University of Iasi : Economic Sciences Series
ISSN 0379-7864

Volume: 2006;
Date: 2006;
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Keywords: institutions | economic growth | transaction costs | property rights.

This paper focuses on the role of institutions in enhancing economic growth. Attention to the institutional environment has become increasingly common in economic history and it has deeply enriched our understanding of how economies develop through time. Economic development is no longer regarded as a gradual, inevitable transformation from local autarky to specialization and the division of labor. Instead, development is seen as a response to the evolution of institutions that support social and commercial relationships. Economic development, then, is institutional development and economic growth depends on institutional efficiency. This paper analyzes the institutional efficiency from the point of view of New Institutional Economics. That is, institutions do matter when it comes to costs minimizing or, in other words, the secret of obtaining efficient institutions consists in reducing transaction costs and, consequently enforce private property rights.
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