1. On “Institutional Clusters” by Jellema & Roland Emmanuel Raynaud INRA SAD & ATOM (U. Paris I)

2. Background Institutions matter for economic growth  Need “good” institutions What are “good” institutions? THE trade-off Individuals are expected to install rules only after they have created mechanisms to control them (Barzel, 2004) A government strong enough to protect property rights and enforce contract is also strong enough to confiscate the wealth of its citizens (Weingast, 1995) The development of market-based exchanges relies on “contract-enforcement” institutions and “coercion- constraining” institutions (Greif, 2005)

3. Background Set the priorities for institutional design Unbundle institutions and check their relative importance for economic growth (Acemoglu & al, 2005) Pb: subsets of institutions likely to be correlated  multicollinearity issue Your move / contribution Construction of institutional clusters based on objective measures Disentangling legal, political & cultural institutions Avoid multicollinearity pb but other drawbacks

4. Comments Describe in more details how one empirical strategy overcome the weaknesses of the other. Describe in more details how one empirical strategy overcome the weaknesses of the other. What is best? To have good summary measure at the cost of potential covariation or to have results free of multicollinearity pb at the cost of unatural interpretation of (some) principal components? What is best? To have good summary measure at the cost of potential covariation or to have results free of multicollinearity pb at the cost of unatural interpretation of (some) principal components? Furthermore what is first in the introduction is second in section 3. Furthermore what is first in the introduction is second in section 3.

5. Food for thought From institutional clusters to “institutional profiles” (or institutional )  a first step toward empirically assessing institutional complementarities à la Aoki? Note that the relevant question is no longer the importance of specific institutions for econ growth but the measure of a “system or fit effect” From institutional clusters to “institutional profiles” (or institutional systems)  a first step toward empirically assessing institutional complementarities à la Aoki? Note that the relevant question is no longer the importance of specific institutions for econ growth but the measure of a “system or fit effect” If yes, a different paper? Relevant analogy on this issue: complementarities among practices within firms (Ichniowski & al, 1997, AER, the effects of human resource management practices on productivity: a study of steel finishing lines).

6. Food for thought Policy implications / recommendations Simple LOT implication (for developing countries): Shift to common law b/c CL better Simple LOT implication (for developing countries): Shift to common law b/c CL better Fit theory implication: Shift to CL will not have the expected benefits (if any) unless other institutions also change Fit theory implication: Shift to CL will not have the expected benefits (if any) unless other institutions also change  We should compare alternative institutional systems At the same time, different institutions have different ability to change (in the short run).

7. Slow vs fast moving institutions (Roland, 2004) (not necessarily easy to implement for empirical works) Slow-moving institutions Fast-moving institutions Cultural clusters Legal & political clusters

8. Food for thought Cultural clusters probably more difficult to change than the other two (in the short run). Cultural clusters probably more difficult to change than the other two (in the short run). (Modified) Fit theory implication: adapt political, legal cultural to each other  adapt fast-moving institutions (legal, political) to slow-moving ones (cultural). (Modified) Fit theory implication: adapt political, legal cultural to each other  adapt fast-moving institutions (legal, political) to slow-moving ones (cultural).

9. Food for thought Example 1: Corsica Formal law: law of the French republic (or of the colonial state depending on your preferences) Law in practice: Clan-based society with code of honor What drives local people’s behavior? Let you guess  Formal law (legal regime) is not necessarily the “law” that people rely on in practice

10. Food for thought Example 2: even in developed countries, national business sectors are riddle with “relational” contracting and other “private institutions” that set rules & related enforcement devices (see Bernstein, 1992, 1998, 2001). Example 2: even in developed countries, national business sectors are riddle with “relational” contracting and other “private institutions” that set rules & related enforcement devices (see Bernstein, 1992, 1998, 2001).  How to measure this in international comparisons? Case studies?

11. At last Civil law tradition is at least good for something Civil law tradition is at least good for something Mark Weist, 2002, “Legal determinants of world cup success”, U. Michigan Law School WP. Mark Weist, 2002, “Legal determinants of world cup success”, U. Michigan Law School WP.

12. Institutions matters for economic growth Institutions matters for economic growth Through which channels? Through which channels? Weaknesses of previous analysis: aggregate measures of institutions based on subjective evaluation Weaknesses of previous analysis: aggregate measures of institutions based on subjective evaluation Which institutions are the most relevant for economic growth? Disentangle different types of institutions but institutional variables are likely to be correlated (multicollinearity issue). Which institutions are the most relevant for economic growth? Disentangle different types of institutions but institutional variables are likely to be correlated (multicollinearity issue). Paper make progress on these issues by using factor analysis: using existing (objective) measures of specific institutions / tease out relevant covariations / deal with multicollinearity  construct small number of institutional clusters Paper make progress on these issues by using factor analysis: using existing (objective) measures of specific institutions / tease out relevant covariations / deal with multicollinearity  construct small number of institutional clusters Identify robust clusters of institutions (what robust mean?). Trade-off between coverage & comprehensiveness. Identify robust clusters of institutions (what robust mean?). Trade-off between coverage & comprehensiveness. Two approaches were used: (i) compute principal components for three sets of institutions: political, judicial and cultural. Good synthetic measures for each categories but potential multicollinearity among variables; (ii) construct institutional clusters (combining previous categories of institutions) with objective measures of institutions avoiding multicollinearity issues (creation of “institutional profiles”?). Two approaches were used: (i) compute principal components for three sets of institutions: political, judicial and cultural. Good synthetic measures for each categories but potential multicollinearity among variables; (ii) construct institutional clusters (combining previous categories of institutions) with objective measures of institutions avoiding multicollinearity issues (creation of “institutional profiles”?).