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Why nations fail: Geography hypothesis Culture hypothesis Ignorance hypothesis  Prescriptions

Political – Economic Interactions: Acemoglu and Robinson’s Extractive and Inclusive Institutions. Why nations fail: Geography hypothesis Culture hypothesis Ignorance hypothesis  Prescriptions Authoritarian growth Modernization Theory – Stages of Growth Washington Consensus.

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Why nations fail: Geography hypothesis Culture hypothesis Ignorance hypothesis  Prescriptions

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  1. Political – Economic Interactions: Acemoglu and Robinson’sExtractive and Inclusive Institutions Why nations fail: Geography hypothesis Culture hypothesis Ignorance hypothesis  Prescriptions Authoritarian growth Modernization Theory – Stages of Growth Washington Consensus

  2. Washington consensus: 1. Fiscal policy discipline; 2. Redirect public spending away from subsidies and toward pro-growth, pro-poor services (education, health, infrastructure investments; 3. Tax reform – broadening the tax base and adopting moderate marginal tax rates; 4. Interest rates that are market determined and positive (but moderate) in real terms; 5. Competitive exchange rates: neither fixed nor free-floating; 6. Trade liberalization ; 7. Liberalization of inward foreign direct investment; 8. Privatization of state enterprises; 9. Deregulation… except prudent oversight of financial institutions; and, 10. Legal security for property rights.

  3. Why Nations Fail: Institutions Hypothesis • Economic institutions • Insecure property rights • Slavery • Plantation system • Encomienda • Mita/Repartimiento • Monopoly • La Serrata • Dual economy • Crony capitalism • Marketing boards • Political institutions • Absolutism • Infighting • Failed state • Ethnic fractionalization • Iron Law of Oligarchy • Elites • Librod’Oro • Indirect rule • Patronage networks Extractive Institutions  Vicious Circles “Redemption – Jim Crow Apartheid Status Quo

  4. Why Nations Fail: Institutions Hypothesis • Economic institutions • Enforced property rights • Patent protection • Rule of law • Open Markets • Commenda • Political institutions • Pluralism • Constraint on executive • Secret ballot • Free media • Muckrakers Inclusive Institutions  Virtuous Circles Creative Destruction (pursuit of transient rents)

  5. Transition to Inclusion and Growth Critical junctures • Disrupt existing institutions • Open opportunities ... Seize opportunities! ... Contingency Critical junctures in Acemoglu and Robinson’s “history” Ideas as Critical Junctures Christopher Columbus Isaac Newton/Enlightenment Benjamin Franklin/AdamSmith John Locke/James Madison Vladimir Lenin Maynard Keynes/Friedrich Hayek Martin Luther King, Jr. • Neolithic revolution • Fall of Rome • Black plague • Atlantic trade • Glorious Revolution • Industrial Revolution • French Revolution • Colonialism • World War I • Post-colonialism • Black empowerment • Mao’s death

  6. Transition to Inclusion and Growth • Institutional drift  small differences • Disease environment • Critical junctures • Reversal of fortune • Centralized state • Pluralist coalition

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