Growth and Development

It's truely amazing to me that 200 years after Adam Smith, we still don't have a better explanation for growth than Smith's!

The problem has been that the theorists and the empericists have worked mostly at the macro level. They can't see the trees for the forest. Working at the micro level, it's clear that entrepreneur's create growth, not governments. Entrepreneurs want to make a profit. Anything that hinders them in that pursuit will hinder growth. What hinders them? Taxes, theft, and corruption. What helps? Freedom and protection of property rights, in other words, sound institutions.

Pritchett's idea that economies occupy different states and that the criteria are different for each state is very similar to the institutional theories of growth. A country in a state of communism will have a very difficult time growing. Pritchett's "states" could be the equivalent of different institutions.

Pritchett's pessimism about growth under the institutional explanation is warranted, for as research shows, culture determines institutions. But giving up on the institutional explanation of growth and searching for an easier path reminds me of the drunk who searched for his car keys under the street light, not because that was where he dropped his keys, but because that was where he had light!