Institutional Development And Economic Development:

With the developments in institutional economics, economic development is no longer regarded as a gradual and inevitable transformation from lower to higher forms of specialisation. Instead, development is seen as a response to the evolution of institutions that support social and commercial relationships. Economic growth thus depends on the degree to which the potential hazards of trade (shirking, opportunism, corruption, etc.) can be controlled by institutions thereby achieving reduced information costs, encourage capital formation and capital mobility, allow risks to be priced and shared and facilitate cooperation. The growth of product and factor markets depends on establishing secure property rights which calls for significant institutional development on the legal front. Further, as an economy industrialises, more and more commercial activities are undertaken requiring finance, banking and insurance markets to efficiently coexist and support the economic exchange.

The characteristics of economic change, however, themselves prescribe no solutions to improve the performance of economies. Even now, very little is known about transforming ailing economies into successful ones. At best, some fundamental characteristics of institutions can be suggested on the following lines in this regard.