On Institutional hypothesis of economic growth

There are various hypotheses or theories on the driver of economic growth. The informal one includes geography, culture, and institution. The most well-known among them is institutional hypothesis; proposed mainly by Daron Acemoglu, a professor in MIT Economics Department. In this writing, I want to a little bit discuss on what he said.

Acemoglu said, the quality of institution, such as the property rights protection, rule of law, etc., is the main driver of economic growth. Countries of which institutions are established will have a bigger chance of high economic growth and development. I completely agree with this notion; indeed, it is very easy to spot how weak the institutions in most of developing countries are. Here it comes the more interesting part.

Acemoglu tried to explain why the institutions in various countries are as it is today, i.e. why some countries have better institutions and why some don’t. He concluded, the quality of institutions is largely influenced by the colonials. In countries where the colonials settled, probably due to suitable climate, lower intensity of diseases, etc., the colonials established an institution which sustain good governance; while in countries of which the spread of diseases are quite high or the temperature are not suitable for the (European) colonials, they will tend to establish an extractive institution, i.e. the institution which focus on getting the resources as much as and as quickly as possible from the colonies. I have a little bit issue with this notion.

Implicitly, this notion implies two things. First, the quality of institutions that we are in right now in many developing countries are just as it is; and that we’re just unlucky that the colonial who colonized us were not quite interested to settle in our country. Second, the notion implies the (European) colonial is the main source of good institution, i.e. they know how to manage things well (good governance); while the others don’t. I think, both implications could lead to pessimism and the feeling of inability to change our fate in many developing countries.

Rather than joining the rank of the pessimist, I would rather believe that change is possible. I think it’s not that the (European) colonials were superior that they know to govern well; no. I believe it’s just that because at that moment, until today, they have the knowledge. So yes, the issue here I believe is about knowledge. In the middle ages, around 600 to 1500 A.D., the (European) colonials were in a very dark state; slums, diseases, etc., were everywhere; just like many developing countries today. But then the knowledge were passed on to them from the Muslims. Similarly, the Muslims early on were passed some knowledge from Greek civilization as well. In short, all of these show that what had happened in the past, let it be; we can’t change it; but we have the opportunity to be better, and that opportunity could be (or will only be) unleashed by education. Insyaallah, let’s get those knowledge as much as possible. The mountain of knowledge might be so high that we’re terrified to climb it; but if, we persistently make the effort to climb, insyaallah, we’ll get to the top.

Finally, I would like to conclude with the source of good governance. I could spend pages and pages arguing that Islamic teaching has the most superior set of good governance values. If there are many problems in Muslim majority countries today, it’s because we are the one who do not practice it. The Islamic teaching will just shine as it is. In short, let’s read and understand the Qur’an; let’s read the hadits, as well as the shiroh (Islamic history). We’re at the cover page of the best source of success. Not only in this world, but also in the hereafter, insyaallah. Wallahua’lam.

“See you not how Allah sets forth a parable? – A goodly word as a goodly tree, whose root is firmly fixed, and its branches (reach) to the sky (i.e. very high). Giving its fruit at all times, by the Leave of its Lord and Allah sets forth parables for mankind in order that they may remember.” (QS Ibrahim: 24-25)

“Muhammad (SAW) is the Messenger of Allah, and those who are with him are severe against disbelievers, and merciful among themselves. You see them bowing and falling down prostrate (in prayer), seeking Bounty from Allah and (His) Good Pleasure. The mark of them (i.e. of their Faith) is on their faces (foreheads) from the traces of (their) prostration (during prayers). This is their description in the Taurat (Torah). But their description in the Injeel (Gospel) is like a (sown) seed which sends forth its shoot, then makes it strong, it then becomes thick, and it stands straight on its stem, delighting the sowers that He may enrage the disbelievers with them. Allah has promised those among them who believe (i.e. all those who follow Islamic Monotheism, the religion of Prophet Muhammad SAW till the Day of Resurrection) and do righteous good deeds, forgiveness and a mighty reward (i.e. Paradise).” (QS AL-Fath:29)



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