Economic development and institutions (EDI): cutting-edge research to shape policy reform

The EDI programme has now concluded. For more information on EDI’s research, including working papers, policy briefs, and videos, visit the EDI website.

While the importance of institutions in shaping trajectories of economic development is broadly acknowledged, research to date has neglected the impact of institutional change and its policy implications. We worked with a consortium of partners – Paris School of Economics, the Centre de Recherche en Économie de Développement (CRED) at the University of Namur, and Aide à la Décision Economique (ADE) – combining world-leading academic researchers with experienced policy influencers to address these evidence gaps.

Our work divided into four research activities:


(i) path-finding papers that take stock of existing evidence on specific issues; (ii)  developing an institutional diagnostic tool that identifies institutional weaknesses critical to economic development;

(iii) Randomised Control Trials (RCTs) that seek to provide robust evidence on the effectiveness of different levers for change; and

(iv) that analyse interactions between formal and informal institutions in relation to growth and development.

Through these activities, and active engagement with policymakers, we promoted a deeper understanding of the key processes that influence economic growth across the globe – and the role of institutional change in shaping these processes.

Our findings provided the basis for a better understanding of what really drives economic development. By focusing on the practical questions that matter for policy, our work helped support evidence-based decision making that underpinned real change at both the national and international levels.

Challenges

Over recent years, academic research has driven major advances in our understanding of the relationship between institutions and economic development. However, the existing literature suffers from a number of limitations.

Firstly, by focusing on the question of which institutions matter for growth rather than how institutions change over time, the current research agenda often fails to answer the practical questions that policymakers face. Academic research needs to start from the challenges imposed on decision-makers by current institutional constraints rather than simply flagging historically-determined barriers to growth. At the other end of the spectrum, action-oriented research has frequently ignored the question of institutions altogether, and as a result addressed marginal, rather than transformational, changes.

Further, conceptual vagueness has made it difficult to build a body of evidence that synthesises findings. Finally, the lack of integration between different research disciplines has resulted in the emergence of fragmented knowledge, duplications, and limited triangulation of results.

The programme’s research and policy engagement activity addressed these knowledge gaps, helped shift the research angle towards the impact of institutional changes, and provided a detailed conceptual framework to approach further analysis in the area.

Our approach

Our team of experts supported the delivery of a seven-year research programme that brought together a world-leading group of academics, under the intellectual leadership of François Bourguignon (Paris School of Economics) and Jean-Philippe Platteau (CRED).

Ensuring the policy value of findings was a key focus of the programme. We worked closely with policymakers at every stage – from framing the research questions through to dissemination of final outputs. We also coordinated with existing research initiatives where appropriate to help maximise the impact of our collective findings.

Our approach was guided by the principle of ‘pluridisciplinarity’: we adopted disciplinary approaches that are relevant to each research question, rather than applying a standard set of disciplinary lenses to every problem. Alongside economists, our research benefitted from the input of political scientists, legal scholars and historians, ensuring more comprehensive analysis and greater policy relevance.

Our research programme produced four deliverables:

• Path-finding papers taking stock of existing evidence on specific issues and identifying gaps for further investigation resulting in the publication of ‘Handbook of Economic Development and Institutions’;
• A new institutional diagnostic building on Hausmann, Rodrik, and Velasco’s growth diagnostic;
• Randomised Control Trials seeking to provide robust evidence on the effectiveness of different levers for institutional change; and
• Case studies that examine the interactions between institutions.

Outcomes

The research conducted by our team helped to promote a deeper understanding of the key processes that influence economic growth across the globe – and the role of institutional change in shaping these processes.

By focusing on the practical questions that matter to policymakers, our work helped support evidence-based decision making that underpinned real change at both the national and international levels.