The rise and decline of nations: the dynamic properties of institutional reform

RUSSELL S. SOBEL

JOURNAL OF INSTITUTIONAL ECONOMICS, Volume 13, Issue 3

Abstract: While it is now well established in the literature that countries with better policies and institutions, as measured by the Economic Freedom of the World index, have better outcomes in terms of prosperity, growth, and measures of human well-being. However, we know little about the process of institutional reform – that is why and how country policies undergo major changes either upward or downward in their levels of economic freedom. This research attempts to provide a systematic overview of this process, by uncovering what the data really show about this transition process. Institutional declines occur more abruptly than institutional improvements, and free trade appears to be a key ‘first mover’ in cases of large institutional change.