Abstract
According to New Institutional Economics, the GDP per capita has significantly improved in the countries where the institutional quality has been improved. In addition to this information, the increase in the quality of institutional determinants has positive effect on economic performance. In this chapter, after the structures of IMF, World Bank, and European Union have been discussed, the governance debate will be made on the aforementioned institutional. Concepts about new institutional economics are discussed, as are the improvement of institutional quality and the relationship of economic development within the frame of IMF, World Bank, and European Union.
TopBackground
In the literature, there are several studies that analyze the relationship between institution and economic development. Those studies have been emphasized that institutional improvements have a positive effect on economic growth.
One of the most significant studies that has remarked the relationship between the improvement of institutions and economic growth is belonging to North. According to North, securing the property rights of individuals and decreasing transaction costs affect economic performance positively (North and Thomas, 1973: 8; North, 1984: 7).
In his study, Rodrik (2003) revealed that geography and international trade have an indirect effect on economy via institutions. In a similar way, Dollar and Kraay (2003) manifested that better institutions and high commercial shares have a positive effect on growth in their studies. In their studies, Acemoglu et al. (2004) approached Korean Peninsula in order to analyze the effect of institutions on economic development. According to Acemoğlu, the reason of the rapid increase of per capita incomes at South Korea vis-à-vis North Korea is that institutional development is more prospering in South Korea. Scilicet, the market structure is more developed, private property is protected and the decisions have been taken in a more democratic manner at South Korea.
The recent studies have approached the relationship between institutions and economic development econometrically. For instance, in their studies, Killick et al. (1992) analyzed the relationship between economic growth and the institutions by approaching a specific institution (IMF). According to the result of their studies, IMF programmes affect economic growth positively. Similarly, in his study, Javed (2015) studied the relationship between developed institutional determinants and the successful execution and completion of IMF programmes. At this point, institutional determinants have a significant role for decreasing the macroeconomic instability. It has been concluded that IMF programmes which have not sufficiently concentrated on the entity of institutional structure cannot provide the essential economic growth.
Key Terms in this Chapter
Institution: The institutions are the most significant structures that form social life.
IMF, World Bank and OECD: Supranational Financial Institutions.
European Union: Economical and political union that is created.
Stagflation: The case of having recession and inflation at the same time.
Corruption: The misuse of a position or power.
Governance: It is term which underlines the importance of participation in the process of management.
Inflation: The rise in the common level of the prices.