Institutional and Non-Institutional

Explanations of Economic
Differences
STANLEY L. ENGERMAN and KENNETH L. SOKOLOFF

By:
Alit Ummayah
8105116572

Introduction

Economists have long been

concerned with the explanation
of

the

differences

between

countries in the level of national

income, population, and income
per capita, as well as their
growth rates.

See the table

The Questions are:

1. Why

the

European

countries

(especially

Britain) and some of their overseas branches

growing faster than the economies of Asia,
Africa, and Latin America?
2. Why some countries in the world today
remains poor, relatively and absolutely?
3. What conditions can be altered to achieve
success in spurring growth and improve the
welfare of their populations?

Discussion
A basic categorization explanation for
economic growth will include:
1. economic,
2. the opportunity to trade at low cost
with other regions or nations,
3. cultural,
4. Political,
5. institutional,
6. natural resources,
7. climate,
8. colonial empire.
9. the role of population change

Noneconomi
c

Non-economic Factors
Some of the classical theory for the emergence of
European

capitalism

and

the

onset

of

modern

economic growth is based on conditions that are

clearly outside the realm of conventional economics,
such as the spread of a particular religious belief,
whether appointed by Max Weber Protestantism,
Judaism highlighted by Werner Sombart, or a shift in
religious orientation dominant.

 The contrast in views between Weber and R.H.

Tawney on the relationship between religious
changes and the rise of capitalism in Britain, and in
northern Europe more generally, for example,
corresponds to similar debates over the sources of
change in many other purportedly non-economic
conditions relevant to economic growth.

Institutions
An important task for the institution to
understand why Britain became the first
industrial country, and to understand the
differences

in

economic

performance

more generally, given relatively little

attention the role of culture.

 Quite a variety of non-economic conditions that are relevant

to the growth has been featured in the debate why Britain
was the first industrialized country. Many can be included in
the category of blankets culture, where cultural factors are
understood to include: religion, especially the impact of nonconformists

in

the

development

of

technology

and

entrepreneurship, scientific spirit and the expansion of

knowledge, including the willingness to seek out new
methods and technologies, and the emergence of the

 Among

the

institutions
performance
involve

most

important

for

economic

are

the

those

that

definition

and

enforcement of property rights

between
private

the

government

sectors

and

and

between

 Institutions, as described, play some role in the

economy. They influence the beliefs and behaviors
of individuals and groups, and thus the preferences
and priorities expressed through both private and
public decisions. The important role that institutions
provide
effective

property

rights

incentives,

and

efficiently,
thereby

trust,

facilitate

and
the

organization and implementation of appropriate and

 The

nature

of

institutional

enforcement

provisions, acceptable both for the legitimacy

and effectiveness, it is vital for the success of
any existing institutions. Similarly, legislative
decrees and judicial decisions may also affect
the results, whether or not they seem to be
consistent with the circumstances in which
each institution was originally adopted.

 The most important elements of the institutional

structure are those who have the ability to adapt to
different conditions and need to adjust to new
circumstances, from those that require the retention
and maintenance of any particular set of policies.
The ability to adapt in the end may be more
significant for economic growth than the continuation
of any particular set of beliefs, rules, or behavior.

 The most detailed examination given

by Montesquieu in 1740, a similar
argument was made much earlier by
Plato.

Including

the

relationship

between the nature of the climate

influence on the willingness to work,
willingness to relocate or immigrate,

 The impact of climate and resources may

also

help

explain

why

different

regions

settled by the same metropolitan power has

a somewhat different economic structure
and performance (such as, for example, New
England and the Indian BritishWest), and
why

are

geographically

contiguous

and

together regional resources completed by

different metropolitan forces (as there are
English and French in the West Indies, as

Conclusion
First, it is clear that very different
institutional structures often seem
reasonable substitute to be conducive to
growth, both in contrast and in similar
contexts. Narrow definition of institutional
conditions for growth are not, as, it seems
appropriate.
Second, the case for linking growth weaker
institutions if the institutions are
endogenous rather than exogenous, and
proof that there is a systematic pattern by
making institutions developing a second

 Institutions clearly important for

growth, but the way we understand
how they care for will be slightly
different if the agency establish
institutions and other forces that are
responsive to the conditions they
face than if the agency develop
independently of (or can be worn in)
context.