Institutional reforms, the business climate, governance, corruption… These are now widely accepted as some of the big issues in development and democratization. Granted that these are important issues, where does one start in examining a particular country to diagnose its institutional health? How does one move from these abstractions to understanding actual incentive structures in countries and the distinctive forces shaping them? How does one identify the key points for institutional change?
By now we have well-developed sets of indicators to acquire snapshots of conditions in a wide range of countries. Some of the better-known are the Heritage Foundation’s Index of Economic Freedom, Freedom House’s Freedom in the World, and the World Bank’s Doing Business indicators. These provide significant detail based on good methodologies, and I suggest you use them, especially for making comparisons across countries.
However, I would recommend that you start by asking the fundamental questions yourself before reaching for the answers. By understanding key concepts — transaction costs, for example, or democratic governance — you can ask some basic questions to guide your examination of most institutional issues in political economy. These are questions such as what are the barriers to market entry; what are the dimensions of the policy environment; and what are the political and historical factors underlying the institutional status quo?
Yes, these are still big questions, but they will lead you in the right direction if you think them through before getting caught up in the details, which are often symptoms of the problem and not the origin. To structure your country study, take a look at the CIPE Guide to Governance Reform, which introduces institutional analysis for democratic, market reform.
Not sure what an institution is? (Hint: don’t think of it as an organization.) See What are Institutions?
Good luck with your analysis!
Published Date: August 21, 2009