Answer to Question #324218 in Macroeconomics for zola

Question

1.           Institutions refer to any structure or mechanism of social order and corporation governing the behaviour of set of individuals within a given human community. Within the context of institutions, discuss the following concepts in the African scenario

 

a)     Decentralization and development

b)     Privatization and development

Answer 1

a.

This Article challenges the claim that political decentralization promotes economic development in two ways. First, by looking closely at the legal history of local autonomy in the United States, it shows that the shifting legal status of cities vis-à-vis their states—which has resulted in alternative bouts of centralization and decentralization—did not cause economic growth. If anything, shifts in the degree of formal local power can be better understood as a consequence of economic growth. Second, it invokes newer work in economic geography that suggests that economic development is unavoidably uneven across jurisdictions and that the reason some places do well economically and others do poorly may have more to do with luck or path dependency than with particular legal institutions. For lawyers the stakes are high for we are told that law and legal frameworks—like the vertical division of authority—can make a great deal of difference to economic welfare. But this understanding of law does not take into account the spatial reality of economic development or the circular relationship between economic growth and legal change. This does not mean that the vertical distribution of powers does not matter—it does, but not in the ways that the decentralization-growth thesis presumes.

b.

the recent empirical evidence on privatization in developing countries, with particular emphasis on new areas of research such as the distributional impacts of privatization. Overall, the literature now reflects a more cautious and nuanced evaluation of privatization. Thus, private ownership alone is no longer argued to automatically generate economic gains in developing economies; pre-conditions (especially the regulatory infrastructure) and an appropriate process of privatization are important for attaining a positive impact. These comprise a list which is often challenging in developing countries: well-designed and sequenced reforms; the implementation of complementary policies; the creation of regulatory capacity; attention to poverty and social impacts; and strong public communication. Even so, the studies do identify the scope for efficiency-enhancing privatization that also promotes equity in developing countries.