Journal section "Theoretical and methodological issues"

Institutional Erosion and Economic Growth

Balatsky E.V.

Volume 16, Issue 3, 2023

Balatsky E.V. (2023). Institutional erosion and economic growth. Economic and Social Changes: Facts, Trends, Forecast, 16(3), 81–101. DOI: 10.15838/esc.2023.3.87.4

DOI: 10.15838/esc.2023.3.87.4

Abstract   |   Authors   |   References
The paper investigates the phenomenon of institutional erosion, which is understood as a decrease in the effectiveness of institutions due to the complication (or, conversely, simplification) of the economic system. Thus, the article substantiates and verifies a hypothesis regarding the impact of economic growth on the quality of institutions. We dwell upon the idea that the possibilities of preventing institutional erosion through timely reforms are limited. This is due to the emergence of institutional friction caused by resistance to reforms on the part of certain social groups and due to the rule of increasing damage. In addition, we consider the process of erosion of human capital under the influence of reforms in the context of cognitive and psychophysiological mechanisms. We put forward a basic and an extended version of the economic growth model that includes the effect of institutional erosion. We conduct computational experiments for the basic model, which made it possible to reveal the effect of economic overheating: a less intensive mode of investment in the long term turns out preferable compared to a more stressful mode of capital accumulation due to the gradual zeroing of the results of explosive growth. We describe the mechanism of degeneration of institutions (i.e., loss of the quality of institutions and the inversion of goals) caused by their internal dialectic. We discuss the significance of a new model of economic growth with institutional erosion for explaining the processes of both ascending and descending branches of social dynamics. We also give an interpretation of some important events of our time in the terms of the new theory


crisis, reforms, economic growth, institutions, capital

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