Institutional change and economic development : evidence from natural and artefactual field experiments in Ethiopia

Thesis title: Institutional Change and Economic Development: Evidence from Natural and Artefactual Field Experiments in Ethiopia

Mequanint Biset Melesse

Abstract

Institutions are the essential underpinning of economic development. A large volume of empirical literature has documented conclusive evidence supporting this hypothesis. Yet, our knowledge on how to bring about institutional change and improvement is still quite imperfect. Moreover, putting in place good institutions that have undergirded the growth of the developed world has not always produced desired results in developing countries. This thesis studies the complex relationship between institutional change and economic development. Its primary focus is on the endogenous formation of institutions and outcomes of institutional changes on the quality and sustainability of other institutions and the dynamics of economic development. It employs randomized field experiments, propensity score matching and instrumental variables approaches to tackle the problem of causal inference. The results indicate that an effective institutional development requires a good knowledge of the interaction between formal and informal institutions and the complex dynamics that such interaction entails. Customary institutions are malleable. Local institutions condition the success and effects of formal institutional changes in important ways. Institutional change is a nonlinear, complex and non-ergodic process, where multiple intended and unintended outcomes are possible. Overall, the results indicate that formal and informal institutions interact out of entrenched corners with both constructive and deleterious repercussions for economic development.