Mystery of Economic Growth – a book review

The theme in Elhanan Helpman’s book (The Mystery of Economic Growth, 2004; Harvard University Press) is that institutions matter more than anything else when we try to answer the question of why a country is poor. His conclusion is not obvious to many, especially non-economists, and Helpman succeeds only to some extent, though in my view it is not his fault.

The field of development economics has been one of many schools, each trying like the six blind men to describe an elephant. Helpman should get the credit for cutting through these schools. A thoughtful reader would understand that for economic growth, savings (sacrifice) and investment are not enough, that diffusion of technology does not explain very much, but that research on institutions is the key. The most important institutions are: property and contract rights, the rule of law, and constraints on the power of rulers. Of course, institutions are not established overnight, and their creation may itself be a mystery of its own.

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