Institutions and Norms in Economic Development.

AuthorYilmaz, Ferudun
PositionBook review

Institutions and Norms in Economic Development, edited by Mark Gradstein and Kai A. Konrad. Cambridge, Mass.: The MIT Pres. 2006. Cloth: ISBN 978 0 262 07284 7, $30. 256 pages.

Because of the complexity of subject matter, the literature on economic development is vast. In the evolution of developmental thought, the early emphasis on narrowly defined "economic" factors shifts toward a society's institutional quality. Recent literature on economic development focuses on the role of political and economic institutions in determining the societal outcomes.

The book is divided into four parts. The first part is a single chapter entitled "The Development Puzzle," in which the editors of the book provide an overview of the literature on development. The remaining three parts of the book are organized around themes that present a subset of the factors that influences economic development. These themes are governance structure, institutional quality, and social norms.

The chapters of Part II (chapters 2 through 4), provide an analysis showing the importance of the structure of governance in economic development by dealing empirically with this issue. In Chapter 2, Nicola Gennaioli and Ilia Rainer try to "document the importance of the precolonial political institutions for the quality of government in colonial and postcolonial Africa" (p. 39). They argue that the economic advantages of centralization in sub-Saharan Africa in providing public goods are better than decentralization policy. The next chapter, by Stuti Khemani, sheds light on intergovernmental relationship in India. By providing new empirical evidence, she argues that the delegation authority to the national political executive of oversight can not successfully promote fiscal discipline in a federation. Instead of this, she suggests an alternative policy area "that might be explored--delegation to an independent fiscal agency of oversight of consolidated government debt and borrowing" (p. 77). In Chapter 4, Michael Kremer shows the distortions inherent in Kenya's school finance system. He argues that the distortions are not necessarily related to decentralization, "[i]nstead, they arise out of a mismatch between the decision-making power of local authorities and their financial responsibilities" (p. 105). He suggests that there is variety of ways to improve this inefficient system.

The chapters of Part III (chapters 5 through 7), focus on the quality and role of institutions in economic...

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