The growth effects of institutional instability

We study the effects of institutional instability on growth. Using principal components analysis, we construct measures of institutional quality and instability from the political risk index of the International Country Risk Guide. A panel-data analysis of 132 countries during 1984–2004 reveals that institutional quality, especially with regard to the legal system and the protection of property rights, is positively linked to growth. As for institutional instability, we find evidence of a positive relationship in rich countries but a negative link in poor countries, suggesting that instability may reduce problems of institutional sclerosis in the former and that instability primarily entails an increase in transactions costs and uncertainty in the latter.

English Commercial Banks and Organizational Inertia: The Financing of SMEs, 1944–1960

This article is a study in the strength of shared strategic beliefs amongst leading British clearing bankers in the years following World War II and how those common beliefs may have inhibited potential for market growth. The subject of the study is the performance of large British deposit bankswith respect to the financing of industry. This behavior has long been criticized by economic historians as suboptimal and, depending on the commentator, has been presented variously as evidence of entrepreneurial failure, the gentrification of the City, social schism amongst the economic and social elite, the political influence of City institutions, the external orientation of capital markets, or institutional sclerosis. However, in earlier studies we have offered a rational economic explanation of the banks' behavior and practices in the late nineteenth and early twentieth centuries.

Unemployment in the New Europe. Edited by Nancy Bermeo. Cambridge: Cambridge University Press, 2001. 368p.$70.00 cloth, $28.00 paper.

The publication under review is the outcome of a Princeton University conference entitled “Unemployment's Effects” held in 1997. The themes of the chapters extend widely. Some authors focus on broad discussions of the possibilities for the “European model” to survive in a global economic setting, while others look at specific relations, for example, between unemployment and trade union strength, in just one European country. Some chapters have clear theoretical objectives, while others have a focus on empirical detail and statistical analysis. On the other hand, the majority of the chapters are related by a general positive view on the sustainability of the European model, even in the seemingly hostile environment of the global economy. Although the European welfare states and labor markets are often accused of being inflexible and hampered by “institutional sclerosis,” they may also foster the development of a soft and kind capitalism—or organized managed economy—as Nancy Bermeo puts it in her introduction to the book.