André Schlüter (University of Viena)
At the beginning of the 21st century New Institutional Economics (NIE) remains a lively field. Besides continuing discussions of particular institutions, scholars are still concerned with the establishment of a unified theory. Among others, North, Wallis, & Weingast (NWW, 2009) and Olson (2000) provide recent additions to the collection of such frameworks. Their authors argue independently that they are capable to explain actual economic history of the Western World by focusing on proposed interrelationships between political and economic development. Despite the theories’ broad reception in academia, scholars have not realised their astonishing similarities nor have they tested them empirically.
This paper contributes to closing this gap by evaluating NWW’s (2009) and Olson’s (2000) to the economic development in New Zealand and Uruguay since 1984. Both modern settler economies are selected as they share similar factor endowments and earlier economic development patterns, but diverge in the origin of their institutional setups. A decade after the global events during the early 1970s and their harsh consequences for New Zealand and Uruguay, the year 1984 became a watershed for both countries6 In this year, a dramatic reversal towards laissez-faire economic policies began in New Zealand (“Rogernomics”) as well as democracy was reestablished in Uruguay. Although both countries have possessed nearly ideal-type political setups and underwent further comprehensive reforms over the last quarter century, their economic growth records have only partially matched earlier expectations.8 While New Zealand has shown one of the worst economic performances of the OECD nations, Uruguay had to overcome a deep recession at the turn to the new millennia.9 Additionally, both countries could not overcome highly skewed income distributions towards a small local elite.10 In other words, the peculiarities of New Zealand’s and Uruguay’s most recent economic histories provide challenges to economic theories, and, thus, allow for amendment of them.
To successfully address the research objective, the paper is structured in the following way. In section one, a critical literature review determines key differences and commonalities in NWW’s and Olson’s propositions about political and economic markets. Next, a brief methology section discusses the transformation of these findings into an applicable research agenda. Following this agenda, the third section contains the findings of the systematic inquiries into quantitative and qualitative data of New Zealand and Uruguay. Among others, fiscal policies as well as the degrees of competition are compared by data derived from international databases, such as the World Development Indicators, and further secondary literature. To enhance understanding, these findings are set into context with respective economic data from high-income OECD countries. The final section concludes the paper and outlines future paths in research.
