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vikingblood vikingblood
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Barylia is an economy with extractive institutions, such as the absence of private property rights and high tax rates. Is it guaranteed that Barylia will always experience no growth or negative growth? Why or why not?
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Macroeconomics

Macroeconomics


Edition: 3rd
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maoginmaogin
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No, the objective of an extractive institution is not to stop or decelerate growth. The main objective of extractive institutions is to maximize the wealth of the elites controlling the institutions. Thus, more the nation grows, more the elites can extract from the people. Hence, even under extractive institutions, growth takes place. But growth under extractive institutions will not be sustained.
Sustained growth depends a lot on innovation. Innovation is unlikely under extractive conditions, as individuals have no personal incentive to innovate. In addition, innovation can lead to political creative destruction. This implies that innovation reduces the chances of the elites staying in power. And since people in extractive frameworks face oppression, political instability is expected, and growth will not be sustained.

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vikingblood Author
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A month ago
Thank you, thank you, thank you!
Lourd Jenkins
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Brilliant ツ
Marcie D
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Helped a lot
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