Indicators of the development of the financial sector do not improve monotonically over time. In particular, we find that by most measures, countries were more financially developed in 1913 than in 1980 and only recently have they surpassed their 1913 levels. This pattern cannot be explained by structural theories that attribute cross-country differences in financial development to time-invariant factors, such as a country's legal origin or culture. We propose an "interest group" theory of financial development where incumbents oppose financial development because it breeds competition. The theory predicts that incumbents' opposition will be weaker when an economy allows both cross-border trade and capital flows. This theory can go some way in accounting for the cross-country differences and the time series variation of financial development. When we recognize that different kinds of institutional heritages afford different scope for private interests to express themselves, we obtain a...

This paper analyzes which of various plausible determinants are significantly related to an index of "perceived corruption" compiled from business risk surveys for the mid-1990s. Using 2SLS to reduce problems of endogeneity and a variation of Leamer's "extreme bounds analysis" to test for robustness, it finds three factors robustly significant. Countries that were more economically developed and those which are former British colonies were rated "less corrupt". Those which have a federal structure were "more corrupt". Daniel Treisman Assistant Professor Department of Political Science University of California, Los Angeles 4289 Bunche Hall LA CA 90095-1472 Treisman@polisci.ucla.edu First Draft September 1997 Revised April 1998 ####

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In recent years, comparative economics experienced a revival, with a new focus on comparing capitalist economies. The theme of the new research is that institutions exert a profound influence on economic development. We argue that, to understand capitalist institutions, one needs to understand the basic tradeoff between the costs of disorder and those of dictatorship. We then apply this logic to study the structure of efficient institutions, the consequences of colonial transplantation, and the politics of institutional choice.

action needs to be stated with some care. Defenders of absolutism throughout the ages, from Bodin, Richelieu, and Louis XIV to Stalin and Mao Tse-tung, have sought to present their own putatively legitimate political authority as founded in fact upon the profound and pervasive trust of its faithful and law-abiding subjects, contested only by the wilfully and inexcusably <<74>> contumacious. But one may doubt in fact whether the passion of trust can ever have been a very prominent characteristic of intricate and massively inegalitarian political relations - perhaps indeed of any political relations of substantial demographic or geographic scope. 2 Certainly it is scarcely a prominent feature, or a natural consequence of either of the leading forms of contemporary state: the huckstering interest brokerage of advanced capitalist democracies or the petulant accents of monopolistic party authority in existing socialist states. Nor, it may be as well to add, would there be

The origins of electoral systems have received scant attention in the literature. Looking at the history of electoral rules in the advanced world in the last century, this paper shows that the existing wide variation in electoral rules across nations can be traced to the strategic decisions that the current ruling parties, anticipating the coordinating consequences of different electoral regimes, make to maximize their representation according to the following conditions. On the one hand, as long as the electoral arena does not change substantially and the current electoral regime serves the ruling parties well, the latter have no incentives to modify the electoral regime. On the other hand, as soon as the electoral arena changes (due to the entry of new voters or a change in their preferences), the ruling parties will entertain changing the electoral system, depending on two main conditions: the emergence of new parties and the coordinating capacities of the old ruling parties. Accordingly, if the new parties are strong, the old parties shift from plurality/majority rules to proportional representation (PR) only if the latter are locked into a ‘non-Duvergerian ’ equilibrium; i.e. if no old party enjoys a dominant position (the case of most small European states)-- conversely, they do not if a Duvergerian equilibrium exists (the case of Great Britain). Similarly, whenever the new entrants are weak, a non-PR system is maintained, regardless of the structure of the old party system (the case of the USA). The paper discusses as well the role of trade and ethnic and religious heterogeneity in the adoption of PR rules. JEL:

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The main purpose of most scholarly research, both theoretical and empirical, is to improve our understanding of the phenomena and processes being studied. The work may lead to useful prescriptions for policy, but that is usually the end-point of a long and winding path. Often, however, especially in matters of economic development and growth, the problems under investigation are large and urgent, so practitioners want immediate answers. Academic researchers are also tempted to offer suggestions for policy, however tentative or incomplete. Work on institutions and growth is a case in point. When I present my own theoretical models to audiences, I am almost invariably asked to interpret the results for their policy implications. The listeners usually find my responses meager and unsatisfactory, and I am compelled to agree. Today I want to take this opportunity to apply the same, admittedly very stringent, test of policy relevance to all academic research in this area. I will interpret all findings of this body of work as if they were prescriptions for policy or institutional reform, and question the validity and practicality of these interpretations.

Income per capita in some Western European countries more than tripled in the two and a half decades that followed World War II. The literature has identified several factors behind this outstanding growth episode, specifically; structural change associated with large migrations from agriculture to nonagricultural sectors, the Marshall Plan combined with the public provision of infrastructure, the surge of intra-European trade, and the reconstruction process that followed the devastation of the war. This paper is an attempt to formalize and quantify the direct contribution of each one of these factors to growth during the European Golden Age. Our results highlight the importance of reconstruction growth and structural change, and point to the limited role of the Marshall Plan, and the late contribution of intra-European trade.

The views expressed herein are those of the authors and do not necessarily reflect This paper examines the issue of wage flexibility in an international context using sectoral wage dispersion data from fourteen OECD countries. An emphasis is placed on the evaluation of Australian institutions and data. We draw comparisons between a measure of wage dispersion and the degree of centralisation of a country's wage setting institution to determine whether decentralised wage setting institutions are necessarily associated with more flexible wages. Inter-country comparisons are drawn among the levels of wage dispersion over time, and the relationship between wages and demand conditions for labour, including productivity and relative prices, are examined. We observe that no strong systematic relationship exists between wage dispersion and the degree of centralisation of labour market institutions. We also find that relative to most other OECD countries for which data are available, Australian wages were strongly correlated both with labour demand conditions and productivity growth over the