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109-437: The gross domestic product (GDP) was 37.080 billion leu in 2021, accounting for 15% of Moldova's economic output. The GDP per capita was ~37,000 leu in 2021. This Moldova location article is a stub . You can help Misplaced Pages by expanding it . Gross domestic product Gross domestic product ( GDP ) is a monetary measure of the market value of all the final goods and services produced and rendered in

218-437: A Darwinian evolution of institutions over time. Public choice theory , another branch of economics with a close relationship to political science, considers how government policy choices are made, and seeks to determine what the policy outputs are likely to be, given a particular political decision-making process and context. Credibility thesis purports that institutions emerge from intentional institution-building but never in

327-434: A bargain. Artificial implementation of institutional change has been tested in political development but can have unintended consequences. North, Wallis, and Weingast divide societies into different social orders: open access orders, which about a dozen developed countries fall into today, and limited access orders, which accounts for the rest of the countries. Open access orders and limited access orders differ fundamentally in

436-408: A cluster of institutions; the two are distinct in the sense that organizations contain internal institutions (that govern interactions between the members of the organizations). An informal institution tends to have socially shared rules, which are unwritten and yet are often known by all inhabitants of a certain country, as such they are often referred to as being an inherent part of the culture of

545-401: A country sells off its resources to entities outside their country this will also be reflected over time in decreased GNI, but not decreased GDP. This would make the use of GDP more attractive for politicians in countries with increasing national debt and decreasing assets. Gross national income (GNI) equals GDP plus income receipts from the rest of the world minus income payments to the rest of

654-637: A country's citizens at home and abroad rather than its "resident institutional units" (see OECD definition above). The switch from GNP to GDP in the United States occurred in 1991. The role that measurements of GDP played in World War II was crucial to the subsequent political acceptance of GDP values as indicators of national development and progress. A crucial role was played here by the U.S. Department of Commerce under Milton Gilbert where ideas from Kuznets were embedded into institutions . The history of

763-426: A country's constitution; or that they may evolve over time as societies evolve. In the case of institutional evolution, it is harder to see them since societal changes happen in a slow manner, despite the perception that institutional change is rapid. Furthermore, institutions change incrementally because of how embedded they are in society. North argues that the nature of these changes is complicated process because of

872-407: A country. Legitimacy allows for there to be an incentive to comply with institutional rules and conditions, leading to a more effective institution. With political power, its centralization within a small group of individual leaders makes it easier and more effective to create rules and run an institution smoothly. However, it can be abused by individual leaders which is something that can contribute to

981-403: A custom might call for each party to keep to their own right (or left—such a choice is arbitrary, it is only necessary that the choice be uniform and consistent). Such customs may be supposed to be the origin of rules, such as the rule, adopted in many countries, which requires driving automobiles on the right side of the road. Secondly, how do institutions affect behaviour? In this perspective,

1090-444: A fairly accurate idea of what it is and know it is tough to come up with quantitative measures for such constructs as happiness, quality of life, and well-being. From the perspective of environmental, social and governance (ESG) measures, GDP per capita trends can be influenced by factors such as gender parity and elements of regulatory quality. In an example of a developing country with a mixed economy from 2008 to 2021, elements such as

1199-406: A given country. Informal practices are often referred to as "cultural", for example clientelism or corruption is sometimes stated as a part of the political culture in a certain place, but an informal institution itself is not cultural, it may be shaped by culture or behaviour of a given political landscape, but they should be looked at in the same way as formal institutions to understand their role in

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1308-404: A given country. The relationship between formal and informal institutions is often closely aligned and informal institutions step in to prop up inefficient institutions. However, because they do not have a centre, which directs and coordinates their actions, changing informal institutions is a slow and lengthy process. According to Geoffrey M. Hodgson , it is misleading to say that an institution

1417-411: A mental institution. To this extent, "institutionalization" may carry negative connotations regarding the treatment of, and damage caused to, vulnerable human beings by the oppressive or corrupt application of inflexible systems of social, medical, or legal controls by publicly owned, private or not-for-profit organizations. The term "institutionalization" may also be used in a political sense to apply to

1526-540: A particular institutional arrangement. Other approaches see institutional development as the result of evolutionary or learning processes. For instance, Pavlović explores the way compliance and socio-economic conditions in a consolidated democratic state are important in the emergence of institutions and the compliance power they have for the rules imposed. In his work, he explains the difference between wealthy societies and non-wealthy societies; wealthy societies on one hand often have institutions that have been functioning for

1635-465: A particular time, culture and society, produced by collective human choice, though not directly by individual intention. Sociology traditionally analyzed social institutions in terms of interlocking social roles and expectations. Social institutions created and were composed of groups of roles, or expected behaviors. The social function of the institution was executed by the fulfillment of roles. Basic biological requirements, for reproduction and care of

1744-446: A phenomenon called path dependence, which states that institutional patterns are persistent and endure over time. These paths are determined at critical junctures, analogous to a fork in the road, whose outcome leads to a narrowing of possible future outcomes. Once a choice is made during a critical juncture, it becomes progressively difficult to return to the initial point where the choice was made. James Mahoney studies path dependence in

1853-468: A society make also have lot to do in the survival and eventual evolution of an institution: they foster groups who want to maintain the set of rules of the game (as described by North), keeping a status quo impeding institutional change. People's interests play an important role in determining the direction of institutional change and emergence. Some scholars argue that institutions can emerge spontaneously without intent as individuals and groups converge on

1962-621: A specific time period by a country or countries. GDP is often used to measure the economic health of a country or region. Several national and international economic organizations maintain definitions of GDP, such as the OECD and the International Monetary Fund . The ratio of GDP to the total population of the region is the GDP per capita and can approximate a concept of a standard of living . Nominal GDP does not reflect differences in

2071-584: A superficial form of Western government but with malfunctioning institutions. In a 2020 study, Johannes Gerschewski created a two-by-two typology of institutional change depending on the sources of change (exogenous or endogenous) and the time horizon of change (short or long). In another 2020 study, Erik Voeten created a two-by-two typology of institutional design depending on whether actors have full agency or are bound by structures, and whether institutional designs reflect historical processes or are optimal equilibriums. Institutions and economic development In

2180-441: A system of human-made, nonphysical elements – norms, beliefs, organizations, and rules – exogenous to each individual whose behavior it influences that generates behavioral regularities." Additionally, they specify that organizations "are institutional elements that influence the set of beliefs and norms that can be self-enforcing in the transaction under consideration. Rules are behavioral instructions that facilitate individuals with

2289-530: A system of rules that are complied with in practice and has a high risk of punishment. It is essential because it will create a slippery slope effect on most laws and transform the nature of once-effective institutions. Many may identify the creation of these formal institutions as a fitting way for agents to establish legitimacy in an international or domestic domain, a phenomenon identified by DiMaggio and Powell and Meyer and Rowan as "isomorphism" and that Levitsky and Murillo liken to window dressing. They describe

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2398-549: A technology, institutions (in the form of law, policy, social regulations, or otherwise) can become locked into a society, which in turn can shape social or economic development. Arthur notes that although institutional lock-in can be predictable, it is often difficult to change once it is locked-in because of its deep roots in social and economic frameworks. Randall Calvert defines institution as "an equilibrium of behavior in an underlying game." This means that "it must be rational for nearly every individual to almost always adhere to

2507-457: A weak institution, actors cannot depend on one another to act according to the rules, which creates barriers to collective action and collaboration. Other social scientists have examined the concept of institutional lock-in. In an article entitled "Clio and the Economics of QWERTY" (1985), economist Paul A. David describes technological lock-in as the process by which a specific technology dominates

2616-643: A while, but also have a stable economy and economic development that has a direct effect in the society's democratic stability. He presents us with three scenarios in which institutions may thrive in poor societies with no democratic background. First, if electoral institutions guarantee multiple elections that are widely accepted; second, if military power is in evenly equilibrium; and third, if this institutions allow for different actors to come to power. Other scholars see institutions as being formed through social contracts or rational purposeful designs. Origin of institutional theory John Meyer and Brian Rowan were

2725-529: Is de facto (informal) institutions as opposed to de jure (formal) institutions in observing cross-country differences. For instance, Lars Feld and Stefan Voigt found that real GDP growth per capita is positively correlated with de facto , not de juri , institutions that are judicially independent. Scholars have also focused on the interaction between formal and informal institutions as well as how informal institutions may create incentives to comply with otherwise weak formal institutions. This departure from

2834-467: Is US$ 5,040,107.75 (in a million). Predictably, as a developed country, Japan has a higher GNI (by 182,779.46, in millions of USD), which is indicative that the production level in the country is higher than that of national production. On the other hand, the case with Armenia is the opposite, with GDP being lower than GNI by US$ 196.12 (in million). This demonstrates that countries receive investments and foreign aid from abroad. The Total income divided by

2943-449: Is a form of behavior. Instead, Hodgson states that institutions are "integrated systems of rules that structure social interactions." Examples of institutions include: In an extended context: While institutions tend to appear to people in society as part of the natural, unchanging landscape of their lives, the study of institutions by the social sciences tends to reveal the nature of institutions as social constructions , artifacts of

3052-495: Is a level of persistence and continuity. Laws, rules, social conventions and norms are all examples of institutions. Institutions vary in their level of formality and informality. Institutions are a principal object of study in social sciences such as political science , anthropology , economics , and sociology (the latter described by Émile Durkheim as the "science of institutions, their genesis and their functioning"). Primary or meta-institutions are institutions such as

3161-955: Is a utilitarian argument that assumes institutions will evolve to maximize overall welfare for economic efficiency. Contrastingly, in Variation in Institutional Strength , Levitksy and Murillo acknowledge that some formal institutions are "born weak," and attribute this to the actors creating them. They argue that the strength of institutions relies on the enforcement of laws and stability, which many actors are either uninterested in or incapable of supporting. Similarly, Brian Arthur refers to these factors as properties of non-predictability and potential inefficiency in matters where increasing returns occur naturally in economics. According to Mansfield and Snyder, many transitional democracies lack state institutions that are strong and coherent enough to regulate mass political competition. According to Huntington,

3270-425: Is also sometimes expressed as: The third way to estimate GDP is to calculate the sum of the final uses of goods and services (all uses except intermediate consumption) measured in purchasers' prices. Market goods that are produced are purchased by someone. In the case where a good is produced and unsold, the standard accounting convention is that the producer has bought the good from themselves. Therefore, measuring

3379-838: Is calculated this way it is sometimes called gross domestic income (GDI), or GDP (I). GDI should provide the same amount as the expenditure method described later. By definition, GDI is equal to GDP. In practice, however, measurement errors will make the two figures slightly off when reported by national statistical agencies. This method measures GDP by adding incomes that firms pay households for factors of production they hire – wages for labour, interest for capital, rent for land and profits for entrepreneurship. The US "National Income and Product Accounts" divide incomes into five categories: These five income components sum to net domestic income at factor cost. Two adjustments must be made to get GDP: Total income can be subdivided according to various schemes, leading to various formulae for GDP measured by

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3488-423: Is contributed at each stage of production. This approach mirrors the OECD (Organisation for Economic Co-operation and Development) definition given above. Gross value added = gross value of output – value of intermediate consumption. Value of output = value of the total sales of goods and services plus the value of changes in the inventory. The sum of the gross value added in the various economic activities

3597-448: Is desirable to compensate for changes in the value of money—for the effects of inflation or deflation. To make it more meaningful for year-to-year comparisons, it may be multiplied by the ratio between the value of money in the year the GDP was measured and the value of money in a base year. For example, suppose a country's GDP in 1990 was $ 100 million and its GDP in 2000 was $ 300 million . Suppose also that inflation had halved

3706-432: Is important to understand what drives institutional change. Acemoglu, Johnson and Robinson assert that institutional change is endogenous. They posit a framework for institutional change that is rooted in the distribution of resources across society and preexisting political institutions. These two factors determine de jure and de facto political power, respectively, which in turn defines this period's economic institutions and

3815-404: Is known as "GDP at factor cost". GDP at factor cost plus indirect taxes less subsidies on products = "GDP at producer price". For measuring the output of domestic product, economic activities (i.e. industries) are classified into various sectors. After classifying economic activities, the output of each sector is calculated by any of the following two methods: The value of output of all sectors

3924-423: Is measured widely in that some measure of GDP is available for almost every country in the world, allowing inter-country comparisons. It is measured consistently in that the technical definition of GDP is relatively consistent among countries. It can be argued that GDP per capita is an indicator of standard of living. As a result, GDP per capita as a standard of living is a continued usage because most people have

4033-494: Is normally referred to as SNA2008 to distinguish it from the previous edition published in 1993 (SNA93) or 1968 (called SNA68) SNA2008 provides a set of rules and procedures for the measurement of national accounts. The standards are designed to be flexible, to allow for differences in local statistical needs and conditions. The raw GDP figure as given by the equations above is called the nominal, historical, or current GDP. When one compares GDP figures from one year to another, it

4142-407: Is now known, gross national income (GNI). The difference is that GDP defines its scope according to location, while GNI defines its scope according to ownership. In a global context, world GDP and world GNI are, therefore, equivalent terms. GDP is a product produced within a country's borders; GNI is product produced by enterprises owned by a country's citizens. The two would be the same if all of

4251-551: Is often used as a metric for international comparisons as well as a broad measure of economic progress . It is often considered to be the world's most powerful statistical indicator of national development and progress. However, critics of the growth imperative often argue that GDP measures were never intended to measure progress, and leave out key other externalities , such as resource extraction , environmental impact and unpaid domestic work . Alternative economic indicators such as doughnut economics use other measures, such as

4360-547: Is provided by Jack Knight who defines institutions as entailing "a set of rules that structure social interactions in particular ways" and that "knowledge of these rules must be shared by the members of the relevant community or society." Definitions by Knight and Randall Calvert exclude purely private idiosyncrasies and conventions. Douglass North argues that institutions are "humanly devised constraints that shape interaction". According to North, they are critical determinants of economic performance, having profound effects on

4469-443: Is the mimetic process where organizations adopt other organizations' practices to resolve internal uncertainty about their own actions or strategy. Lastly, it is the normative pressure where organizations adopt changes related to the professional environment like corporate changes or cultural changes in order to be consistent. In order to understand why some institutions persist and other institutions only appear in certain contexts, it

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4578-450: Is then added to get the gross value of output at factor cost. Subtracting each sector's intermediate consumption from gross output value gives the GVA (=GDP) at factor cost. Adding indirect tax minus subsidies to GVA (GDP) at factor cost gives the "GVA (GDP) at producer prices". The second way of estimating GDP is to use "the sum of primary incomes distributed by resident producer units". If GDP

4687-650: The Cournot duopoly model is based on an institution involving an auctioneer who sells all goods at the market-clearing price. While it is always possible to analyze behaviour with the institutions-as-equilibria approach instead, it is much more complicated. In political science , the effect of institutions on behavior has also been considered from a meme perspective, like game theory borrowed from biology. A "memetic institutionalism" has been proposed, suggesting that institutions provide selection environments for political action, whereby differentiated retention arises and thereby

4796-598: The Human Development Index or Better Life Index , as better approaches to measuring the effect of the economy on human development and well being . William Petty came up with a concept of GDP, to calculate the tax burden , and argue landlords were unfairly taxed during warfare between the Dutch and the English between 1652 and 1674. Charles Davenant developed the method further in 1695. The modern concept of GDP

4905-410: The cost of living and the inflation rates of the countries; therefore, using a basis of GDP per capita at purchasing power parity (PPP) may be more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market. Total GDP can also be broken down into the contribution of each industry or sector of the economy. GDP

5014-605: The family or money that are broad enough to encompass sets of related institutions. Institutions are also a central concern for law , the formal mechanism for political rule-making and enforcement. Historians study and document the founding, growth, decay and development of institutions as part of political, economic and cultural history. There are a variety of definitions of the term institution . These definitions entail varying levels of formality and organizational complexity. The most expansive definitions may include informal but regularized practices, such as handshakes, whereas

5123-469: The "lock-in" phenomenon in which adds a lot of value to a piece of technology that is used by many people. It is important for policymakers and people of higher levels within an institution to consider when looking at products that have a long term impact on markets and economic developments and stability. For example, recently the EU has banned TikTok from official devices across all three government institutions. This

5232-465: The Central American countries. Though institutions are persistent, North states that paths can change course when external forces weaken the power of an existing organization. This allows other entrepreneurs to affect change in the institutional framework. This change can also occur as a result of gridlock between political actors produced by a lack of mediating institutions and an inability to reach

5341-602: The Japanese people and government. Under this analysis, says Ian Lustick, Japan was stuck on a "local maxima", which it arrived at through gradual increases in its fitness level, set by the economic landscape of the 1970s and 80s. Without an accompanying change in institutional flexibility, Japan was unable to adapt to changing conditions, and even though experts may have known which changes the country needed, they would have been virtually powerless to enact those changes without instituting unpopular policies that would have been harmful in

5450-400: The ability to cause change over a long period of time. For example, Levitsky and Murillo stress the importance of institutional strength in their article "Variation in Institutional Strength." They suggest that in order for an institution to maintain strength and resistance there must be legitimacy within the different political regimes, variation in political power, and political autonomy within

5559-427: The accounting year. ) So for example if a car manufacturer buys auto parts , assembles the car and sells it, only the final car sold is counted towards the GDP. Meanwhile, if a person buys replacement auto parts to install them on their car, those are counted towards the GDP. According to the U.S. Bureau of Economic Analysis, which is responsible for calculating the national accounts in the United States, "In general,

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5668-440: The amount of freedom of a society, or the quality of life of the individuals within. The term "institutionalization" is widely used in social theory to refer to the process of embedding something (for example a concept, a social role, a particular value or mode of behavior) within an organization, social system, or society as a whole. The term may also be used to refer to committing a particular individual to an institution, such as

5777-417: The average production of a person in the country. Lists of GDP per capita: GDP per capita is often used as an indicator of living standards. The major advantage of GDP per capita as an indicator of the standard of living is that it is measured frequently, widely, and consistently. It is measured frequently in that most countries provide information on GDP every quarter, allowing trends to be seen quickly. It

5886-443: The behavior prescriptions of the institution, given that nearly all other individuals are doing so." Robert Keohane defined institutions as "persistent and connected sets of rules (formal or informal) that prescribe behavioral roles, constrain activity, and shape expectations." Samuel P. Huntington defined institutions as "stable, valued, recurring patterns of behavior." Avner Greif and David Laitin define institutions "as

5995-421: The benefits they can derive from the change. North describes the institutional change as a process that is extremely incremental, and that works through both formal and informal institutions. North also proposes that institutional change, inefficiencies, and economic stagnation can be attributed to the differences between institutions and organizations. This is because organizations are created to take advantage of

6104-430: The changes in rules, informal constraints, and the effectiveness of enforcement of these institutions. Levitsky and Murillo explore the way institutions are created. When it comes to institutional design, the timeframe in which these institutions are created by different actors may affect the stability the institution will have on society, because in these cases the actors may have more (or less) time to fully calculate

6213-420: The cognitive task of choosing behavior by defining the situation and coordinating behavior." All definitions of institutions generally entail that there is a level of persistence and continuity. Laws, rules, social conventions and norms are all examples of institutions. Organizations and institutions can be synonymous, but Jack Knight writes that organizations are a narrow version of institutions or represent

6322-540: The concept of GDP should be distinguished from the history of changes in many ways of estimating it. The value added by firms is relatively easy to calculate from their accounts, but the value added by the public sector , by financial industries, and by intangible asset creation is more complex. These activities are increasingly important in developed economies, and the international conventions governing their estimation and their inclusion or exclusion in GDP regularly change in an attempt to keep up with industrial advances. In

6431-404: The concept of a fitness landscape and local maxima only makes sense if one institution can be said to be "better" than another, and this in turn only makes sense insofar as there exists some objective measure of an institution's quality. This may be relatively simple in evaluating the economic prosperity of a society, for example, but it is difficult to see how objectively a measure can be applied to

6540-502: The context of institutions and how they are formed, North suggests that institutions ultimately work to provide social structure in society and to incentivize individuals who abide by this structure. North explains that there is in fact a difference between institutions and organizations and that organizations are "groups of people bound by some common purpose to achieve objectives." Additionally, because institutions serve as an umbrella for smaller groups such as organizations, North discusses

6649-488: The context of national regime change in Central America and finds that liberal policy choices of Central American leaders in the 19th century was the critical juncture that led to the divergent levels of development that we see in these countries today. The policy choices that leaders made in the context of liberal reform policy led to a variety of self-reinforcing institutions that created divergent development outcomes for

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6758-671: The costs of exchange and production. He emphasizes that small historical and cultural features can drastically change the nature of an institution. Daron Acemoglu , Simon Johnson , and James A. Robinson agree with the analysis presented by North. They write that institutions play a crucial role in the trajectory of economic growth because economic institutions shape the opportunities and constraints of investment. Economic incentives also shape political behavior, as certain groups receive more advantages from economic outcomes than others, which allow them to gain political control. A separate paper by Acemoglu, Robinson, and Francisco A. Gallego details

6867-451: The countries with ineffective or weak institutions often have a gap between high levels of political participation and weak political institutions, which may provoke nationalism in democratizing countries. Regardless of whether the lack of enforcement and stability in institutions is intentional or not, weakly enforced institutions can create lasting ripples in a society and their way of functioning. Good enforcement of laws can be classified as

6976-504: The country, but owned by one of its citizens, counts as part of its GNI but not its GDP. For example, the GNI of the US is the value of output produced by American-owned firms, regardless of where the firms are located. Similarly, if a country becomes increasingly in debt, and spends large amounts of income servicing this debt this will be reflected in a decreased GNI but not a decreased GDP. Similarly, if

7085-430: The developing world institutions as "window-dressing institutions" that "are often a response to international demands or expectations." It also provides an effective metaphor for something that power holders have an interest in keeping on the books, but no interest in enforcing. The dependence developing countries have on international assistance for loans or political power creates incentives for state elites to establish

7194-585: The extent that they are associated with changes in institutions. In European history, particular significance is attached to the long transition from the feudal institutions of the Middle Ages to the modern institutions, which govern contemporary life. Scholars have proposed different approaches to the emergence of institutions, such as spontaneous emergence, evolution and social contracts. In Institutions: Institutional Change and Economic Performance , Douglas North argues that institutions may be created, such as

7303-456: The faults of these policies. As an example, Lustick cites Amyx's analysis of the gradual rise of the Japanese economy and its seemingly sudden reversal in the so-called "Lost Decade" . According to Amyx, Japanese experts were not unaware of the possible causes of Japan's economic decline. Rather, to return Japan's economy back to the path to economic prosperity, policymakers would have had to adopt policies that would first cause short-term harm to

7412-626: The first scholars to introduce institutional theory to inspect how organizations are shaped by their social and political environments and how they evolve in different ways. Other scholars like Paul DiMaggio and Walter Powell proposed one of the forms of institutional change shortly after: institutional isomorphism. There were three main proposals. The first one is the coercive process where organizations adopt changes consistent with their larger institution due to pressures from other organizations which they might depend on or be regulated by. Such examples include state mandates or supplier demands. The second one

7521-559: The focus is on behaviour arising from a given set of institutional rules. In these models, institutions determine the rules (i.e. strategy sets and utility functions) of games, rather than arise as equilibria out of games. Douglass North argues, the very emergence of an institution reflects behavioral adaptations through his application of increasing returns . Over time institutions develop rules that incentivize certain behaviors over others because they present less risk or induce lower cost, and establish path dependent outcomes. For example,

7630-435: The formation of smaller groups with other goals and objectives is crucial for an institution's survival. Additionally, technological developments are important in the economic development of an institution. As detailed by Brian Arthur in "Competing Technologies, Increasing Returns, and Lock-in by Historical Events", technological advancements play a crucial role in shaping the economic stability of an institution. He talks about

7739-461: The impact of institutional change and the ways in which it can cause economic performance to decline or become better depending on the occurrence. This is known as "path dependence" which North explains is the idea of historical and cultural events impacting the development of institutions over time. Even though North argues that institutions due to their structure do not possess the ability to change drastically, path dependence and small differences have

7848-467: The impact of institutions on economic development in various countries, concluding that institutions in prosperous countries like the United States induced a net increase in productivity, whereas institutions in Third World countries caused a net decrease. Scholars of this period assumed that "parchment institutions" that were codified as law would largely guide the behavior of individuals as intended. On

7957-495: The impacts the institution in question will have, the way the new rules affect people's interests and their own, and the consequences of the creation of a new institution will have in society. Scholars like Christopher Kingston and Gonzalo Caballero also pose the importance of gradual societal change in the emergence of brand new institutions: these changes will determine which institutions will be successful in surviving, spreading, and becoming successful. The decisions actors within

8066-519: The importance of institutional strength can be found in Lacatus' essay on national human rights institutions in Europe, where she states that "As countries become members of GANHRI, their NHRIs are more likely to become stronger over time and show a general pattern of isomorphism regarding stronger safeguards for durability." This demonstrates that institutions running independently and further creating spaces for

8175-503: The inability of institutions to adapt as a symptom of being stuck on a local maxima within a fitness landscape does nothing to solve the problem. At the very least, however, it might add credibility to the idea that truly beneficial change might require short-term harm to institutions and their members. David Sloan Wilson notes that Lustick needs to more carefully distinguish between two concepts: multilevel selection theory and evolution on multi-peaked landscapes. Bradley Thayer points out that

8284-553: The income approach. A common one is: The sum of COE , GOS and GMI is called total factor income; it is the income of all of the factors of production in society. It measures the value of GDP at factor (basic) prices. The difference between basic prices and final prices (those used in the expenditure calculation) is the total taxes and subsidies that the government has levied or paid on that production. So adding taxes less subsidies on production and imports converts GDP(I) at factor cost to GDP(I) at final prices. Total factor income

8393-497: The individual actors within an institution. This can also be seen in the recent issue with Silvergate and money being moved to crypto exchanges under the SEN Platform institution, which has led the bank to "delay the filing of its annual report due to questions from its auditors." Additionally, they lost many crypto clients the next day allowing the bank's stock price to fall by 60% before it stabilized again. These examples demonstrate

8502-407: The individual liberty of a truly free society. Economics , in recent years, has used game theory to study institutions from two perspectives. Firstly, how do institutions survive and evolve? In this perspective, institutions arise from Nash equilibria of games. For example, whenever people pass each other in a corridor or thoroughfare, there is a need for customs, which avoid collisions. Such

8611-410: The information required (especially information on expenditure and production by governments). The international standard for measuring GDP is contained in the book System of National Accounts (2008), which was prepared by representatives of the International Monetary Fund , European Union , Organisation for Economic Co-operation and Development , United Nations and World Bank . The publication

8720-411: The institution to improve any further, it would first need to decrease its overall fitness score (e.g., adopt policies that may cause short-term harm to the institution's members). The tendency to get stuck on local maxima can explain why certain types of institutions may continue to have policies that are harmful to its members or to the institution itself, even when members and leadership are all aware of

8829-404: The market, even when the technology is not the most efficient of the ones available. He proceeds to explain that lock-in is a result of path-dependence, where the early choice of technology in a market forces other actors to choose that technology regardless of their natural preferences, causing that technology to "lock-in". Economist W. Brian Arthur applied David's theories to institutions. As with

8938-441: The most narrow definitions may only include institutions that are highly formalized (e.g. have specified laws, rules and complex organizational structures). According to Wolfgang Streeck and Kathleen Thelen , institutions are, in the most general sense, "building blocks of social order: they represent socially sanctioned, that is, collectively enforced expectations with respect to the behavior of specific categories of actors or to

9047-426: The next period's political institutions. Finally, the current economic institutions determine next period's distribution of resources and the cycle repeats. Douglass North attributes institutional change to the work of "political entrepreneurs", who see personal opportunities to be derived from a changed institutional framework. These entrepreneurs weigh the expected costs of altering the institutional framework against

9156-638: The opportunities created by institutions and, as organizations evolve, these institutions are then altered. Overall, according to North, this institutional change would then be shaped by a lock-in symbiotic relationship between institutions and organizations and a feedback process by which the people in a society may perceive and react to these changes. Lipscomb argues that patterns of institutional change vary according to underlying characteristics of issue areas, such as network effects. North also offers an efficiency hypothesis, stating that relative price changes create incentives to create more efficient institutions. It

9265-404: The originally intended form. Instead, institutional development is endogenous and spontaneously ordered and institutional persistence can be explained by their credibility, which is provided by the function that particular institutions serve. Political scientists have traditionally studied the causes and consequences of formal institutional design. For instance, Douglass North investigated

9374-546: The other hand, recent scholars began to study the importance of institutional strength, which Steven Levitsky and María Victoria Murillo define in terms of the level of enforcement and sustainability of an institution. Weak institutions with low enforcement or low sustainability led to the deterioration of democratic institutions in Madagascar and the erosion of economic structures in China. Another area of interest for modern scholars

9483-599: The per capita gross domestic product and the unemployment rate have a significant effect on the number of MSMEs in the Philippines. Real GDP can be used to calculate the GDP growth rate, which indicates how much a country's production has increased (or decreased, if the growth rate is negative) compared to the previous year, typically expressed as percentage change . The economic growth can be expressed as real GDP growth rate or real GDP per capita growth rate . GDP can be contrasted with gross national product (GNP) or, as it

9592-508: The performance of certain activities. Typically, they involve mutually related rights and obligations for actors." Sociologists and anthropologists have expansive definitions of institutions that include informal institutions. Political scientists have sometimes defined institutions in more formal ways where third parties must reliably and predictably enforce the rules governing the transactions of first and second parties. One prominent Rational Choice Institutionalist definition of institutions

9701-534: The population is the Per capita income . Institution 1800s: Martineau · Tocqueville  ·  Marx ·  Spencer · Le Bon · Ward · Pareto ·  Tönnies · Veblen ·  Simmel · Durkheim ·  Addams ·  Mead · Weber ·  Du Bois ·  Mannheim · Elias An institution is a humanly devised structure of rules and norms that shape and constrain social behavior. All definitions of institutions generally entail that there

9810-426: The productive enterprises in a country were owned by its own citizens and those citizens did not own productive enterprises in any other countries. In practice, however, foreign ownership makes GDP and GNI non-identical. Production within a country's borders, but by an enterprise owned by somebody outside the country, counts as part of its GDP but not its GNI; on the other hand, production by an enterprise located outside

9919-503: The products must be bought by somebody, therefore the value of the total product must be equal to people's total expenditures in buying things. The income approach works on the principle that the incomes of the productive factors ("producers", colloquially) must be equal to the value of their product, and determines GDP by finding the sum of all producers' incomes. Also known as the Value Added Approach, it calculates how much value

10028-675: The raw GDP data. The GDP adjusted for changes in money value in this way is called the real GDP . The factor used to convert GDP from current to constant values in this way is called the GDP deflator . Unlike consumer price index , which measures inflation or deflation in the price of household consumer goods, the GDP deflator measures changes in the prices of all domestically produced goods and services in an economy including investment goods and government services, as well as household consumption goods. GDP can be adjusted for population growth, also called Per-capita GDP or GDP per person . This measures

10137-499: The relationships between institutions, human capital, and economic development. They argue that institutions set an equal playing field for competition, making institutional strength a key factor in economic growth. Authors Steven Levitsky and María Victoria Murillo claim that institutional strength depends on two factors: stability and enforcement. An unstable, unenforced institution is one where weak rules are ignored and actors are unable to make expectations based on their behavior. In

10246-408: The same result. They are the production (or output or value added) approach, the income approach, and the speculated expenditure approach. It is representative of the total output and income within an economy. The most direct of the three is the production approach, which sums up the outputs of every class of enterprise to arrive at the total. The expenditure approach works on the principle that all of

10355-707: The short-term. The lessons from Lustick's analysis applied to Sweden's economic situation can similarly apply to the political gridlock that often characterizes politics in the United States. For example, Lustick observes that any politician who hopes to run for elected office stands very little to no chance if they enact policies that show no short-term results. There is a mismatch between policies that bring about short-term benefits with minimal sacrifice, and those that bring about long-lasting change by encouraging institution-level adaptations. There are some criticisms to Lustick's application of natural selection theory to institutional change. Lustick himself notes that identifying

10464-504: The social sciences, particularly those with the institution as a central concept, can benefit by applying the concept of natural selection to the study of how institutions change over time. By viewing institutions as existing within a fitness landscape , Lustick argues that the gradual improvements typical of many institutions can be seen as analogous to hill-climbing within one of these fitness landscapes. This can eventually lead to institutions becoming stuck on local maxima , such that for

10573-428: The source data for the expenditures components are considered more reliable than those for the income components [see income method, above]." Encyclopedia Britannica records an alternate way of measuring exports minus imports: notating it as the single variable NX. Within each country GDP is normally measured by a national government statistical agency, as private sector organizations normally do not have access to

10682-426: The supposed human "propensity to truck, barter and exchange". Modern feminists have criticized traditional marriage and other institutions as element of an oppressive and obsolete patriarchy . The Marxist view—which sees human nature as historically 'evolving' towards voluntary social cooperation, shared by some anarchists —is that supra-individual institutions such as the market and the state are incompatible with

10791-536: The total expenditure used to buy things is a way of measuring production. This is known as the expenditure method of calculating GDP. GDP (Y) is the sum of consumption (C) , investment (I) , government expenditures (G) and net exports (X − M) . Here is a description of each GDP component: C , I , and G are expenditures on final goods and services; expenditures on intermediate goods and services do not count. (Intermediate goods and services are those used by businesses to produce other goods and services within

10900-451: The traditional understanding of institutions reflects the scholarly recognition that a different framework of institutional analysis is necessary for studying developing economies and democracies compared to developed countries. In history, a distinction between eras or periods, implies a major and fundamental change in the system of institutions governing a society. Political and military events are judged to be of historical significance to

11009-465: The value of its currency over that period. To meaningfully compare its GDP in 2000 to its GDP in 1990, we could multiply the GDP in 2000 by one-half, to make it relative to 1990 as a base year. The result would be that the GDP in 2000 equals $ 300 million × 1 ⁄ 2 = $ 150 million , in 1990 monetary terms. We would see that the country's GDP had realistically increased 50 percent over that period, not 200 percent, as it might appear from

11118-432: The way power and influence is distributed. As a result, open access institutions placed in limited access orders face limited success and are often coopted by the powerful elite for self-enrichment. Transition to more democratic institutions is not created simply by transplanting these institutions into new contexts, but happens when it is in the interest of the dominant coalition to widen access. Ian Lustick suggests that

11227-525: The ways in which institutions and the economy interact, and how the well-being of the economy is essential for the institution's success and ability to run smoothly. North argues that because of the preexisting influence that existing organizations have over the existing framework, change that is brought about is often in the interests of these organizations. This is because organizations are created to take advantage of such opportunities and, as organizations evolve, these institutions are altered. This produces

11336-403: The weakening of an institution over time. Lastly, independence within an institution is vital because the institutions are making decisions based on expertise and norms that they have created and built over time rather than considerations from other groups or institutions. Having the ability to operate as an independent institution is crucial for its strength and resistance over time. An example of

11445-473: The words of one academic economist, "The actual number for GDP is, therefore, the product of a vast patchwork of statistics and a complicated set of processes carried out on the raw data to fit them to the conceptual framework." China officially adopted GDP in 1993 as its indicator of economic performance. Previously, China had relied on a Marxist-inspired national accounting system. GDP can be determined in three ways, all of which should, theoretically, give

11554-514: The world. In 1991, the United States switched from using GNP to using GDP as its primary measure of production. The relationship between United States GDP and GNP is shown in table 1.7.5 of the National Income and Product Accounts . Another example that amplifies the difference between GDP and GNI is the comparison of developed and developing country indicators. The GDP of Japan for 2020

11663-655: The young, are served by the institutions of marriage and family, for example, by creating, elaborating and prescribing the behaviors expected for husband/father, wife/mother, child, etc. The relationship of the institutions to human nature is a foundational question for the social sciences. Institutions can be seen as "naturally" arising from, and conforming to, human nature—a fundamentally conservative view—or institutions can be seen as artificial, almost accidental, and in need of architectural redesign, informed by expert social analysis, to better serve human needs—a fundamentally progressive view. Adam Smith anchored his economics in

11772-456: Was due to "cybersecurity concerns" and data protection in regards to data collection by "third parties." This concern regarding TikTok's growing popularity demonstrates the importance of technological development within an institutional economy. Without understanding of what these products are doing or selling to the consumers, there runs a risk of it weakening an institution and causing more harm than good if not carefully considered and examined by

11881-483: Was first developed by Simon Kuznets for a 1934 U.S. Congress report, where he warned against its use as a measure of welfare (see below under limitations and criticisms ). After the Bretton Woods Conference in 1944, GDP became the main tool for measuring a country's economy. At that time gross national product (GNP) was the preferred estimate, which differed from GDP in that it measured production by

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