Ailing institutions, stagnating economy

Political leadership shapes a nation’s fate, while institutional change is prerequisite for economic growth.

One of the most fundamental ways to characterise a nation’s approach to economic development is to look at the workings of its institutions. In simple terms, institutions are the incentive mechanisms embedded in the country’s formal and informal guidance systems. When these mechanisms fail to create useful incentives, and people lose trust in the system, they are reluctant to engage in productive activities. Historical evidence from large parts of South and Central Asia, Africa and Latin America shows that countries with ailing institutions suffer from economic stagnation and face recurring political conflicts.