Institutions as economic growth determinants: a comparative study of New Zealand and Argentina
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Through the last two and a half decades academia has realised that viable explanations of the rise and decline of nations in a world in dramatic economic and political change requires more than a static neoclassical model. Among the flourishing research on institutions as economic growth determinants are the two distinct theories of Douglass North, the co-recipient of Nobel Prize in 1993, and Mancur Olson. Both scholars claim the universality of their approaches in explaining real world economic history. However, research on the differences in their theories and their applicability to small and remote countries, like New Zealand and Argentina, remains in its early stages. A more detailed investigation of conceptual differences may clarify particular economic growth parameters, and may provide more empirical support for each theory. Thus, the research question is: Can the economic growth patterns of New Zealand and Argentina of the last quarter century be explained either by Douglass North’s ‘cultural heritage’ hypothesis or by Mancur Olson’s ‘country-specific economic policy’ hypothesis? Firstly, an in-depth literature review of Douglass North’s and Mancur Olson’s latest academic work is conducted. Based on the examination of commonalities and differences in their terminologies and concepts, a conceptual framework for further empirical tests is derived. The framework is used to evaluate New Zealand’s and Argentina’s economic growth patterns in order to address the abovementioned research question. The assessment of the literature reveals that both scholars share the notion of the role of the state in providing well-defined individual property rights, low transaction cost levels, and well-developed national capital markets to achieve economic growth potential. They ascribe growth-fostering characteristics to institutions of Britain and other relating democracies, while they see obstacles for economic success for Latin American countries. On the other hand, their propositions differ substantially in the foundation of economic policy and its ability to adjust over time. The findings of the empirical research show that institutions play a major role. However, the proposed differences in the aforementioned indicators exist only to a limited extent. An enhanced understanding is obtained that New Zealand’s and Argentina’s economic growth patterns cannot be solely explained neither by North’s nor Olson’s theory. A combination of both theories and further amendments might account more accurately for the actual economic histories of the two countries.