Economic Performance Through Time: A Dynamical Theory

Abstract

The central problems of Development Economics are the explanation of the gross disparities in the global distribution, $\cal{D}$, of economic performance, $\cal{E}$, and the persistence, $\cal{P}$, of said distribution. Douglass North argued, epigrammatically, that institutions, $\cal{I}$, are the rules of the game, meaning that $\cal{I}$ determines or at least constrains $\cal{E}$. This promised to explain $\cal{D}$. 65,000 citations later, the central problems remain unsolved. North's institutions are informal, slowly changing cultural norms as well as roads, guilds, and formal legislation that may change overnight. This definition, mixing the static and the dynamic, is unsuited for use in a necessarily time dependent theory of developing economies. We offer here a suitably precise definition of $\cal{I}$, a dynamical theory of economic development, a new measure of the economy, an explanation of $\cal{P}$, a bivariate model that explains half of $\cal{D}$, and a critical reconsideration of North's epigram.