Institutional change and the quality of rules in ensuring economic growth

Abstract

The quality of existing rules, as well as their change, impacts on economic growth. Meanwhile, numerous scientific contributions paint a very truncated picture of this influence. The study aims to identify the relationship between institutional change, the quality of rules, and economic growth through the construction of a theoretical model. The theory of economic growth, North and Olson’s theory of institutional change as well as the author’s theory of malfunctions constitute the methodological basis of the research. The methods include taxonomic analysis and modeling. The study demonstrates that the quality of institutions, and moreover, the institutional environment, can be assessed by measuring their malfunction, as well as using standard methods from the field of economics of quality. As a result, the paper grounds that in essence, both approaches are models of the quality of institutions, and therefore, the quality assessment itself can be to a certain degree inaccurate. At the same time, the study identifies two basic types of institutional change: those produced by the governing body (corrections) and those occurring spontaneously. A constraint on the rate of institutional change for economic growth is also obtained. In addition, the paper illustrates that the classical criteria for welfare assessment does not take into account the impact of these changes. This modifies the generally accepted approach in the field of welfare theory, turning the latter into an institutional theory. The final conclusion is that the policy of growth pursued in the conditions of changing institutions leads to even more unbalanced distribution of benefits between groups of economic agents, which imposes stricter requirements for institutional planning.