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  1. Michael Wulfsohn
    Michael Wulfsohn March 4, 2013 at 10:47 am

    Thanks for a great article.

    Acemoglu and Robinson talk about the interactions between economic and political institutions and their vicious/virtuous circles – these institutions can support each other towards becoming either more extractive or more inclusive. In other words, they treat politics as endogenous, which means it’s misleading to try to structure their thesis into an independent “x” and a dependent “y”. You mention Japan which is actually a good example of this – the Meiji reforms created a virtuous circle, with more inclusive institutions leading to even more inclusive institutions (the Diet) over time, and economic growth occurring with every move toward more inclusiveness.

    I like the idea of the “innovation frontier”, as this seems to provide a concept of how current Chinese growth is probably different from previous Soviet growth. However, commentators on A&R’s theory usually assume, as you have, that the prediction is that China’s growth is limited. An alternative possibility consistent with the theory is that the increased inclusiveness of the economic institutions leads to pressure on the political institutions to become more inclusive. For example, one can imagine a more educated and wealthy populace demanding unfettered internet access and other political freedoms. On the flipside, China could still turn bad; we have only seen 30 years of economic growth, which is not really that long a period. We must not fall into the “irrational exuberance” trap of extrapolating trends in the same way as 1929 share market participants did before the crash. It is useful to note that the Soviet Union created similar sentiment by growing for a similar period, but then stalled.

    I commend your desire for a more detailed specification of “inclusive” vs “extractive”, and await with interest the next instalment.

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