Economic Institutions are tightly linked with country's political situations. To set a certain impact in the world economy of any country plays an integral role.
Economic Institutions are designed in two shapes. These two kinds are derived by the politicians. In short we can say that the procedure of how economic Institutions will work it all depends upon the politicians.
[Disclaimer:
Anything i will write in this article is not meant to hurt or harm anyone's feeling. I have written this article just for information not to down the image of any country.]
How politicians will lead these economic Institutions they will bring outcome in the same way. Have you ever wondered that why countries differed from one another in sucess. Just think about two countries, The one is South korea and the second is North Korea. The only difference is how institutions are working in both of these countries?.
North korea and South korea were previously the same country. After Second World War korea was divided into two halves at 38th parallel. Now, North korea is a black hole and South Korea is glittering with bright economy. This is all due to politicians and their decisions which determined the economy of their country to boom or to dump. There are striking differences between both of these countries and these differences are not so ancient.
Here i want to add a bit about Culture Hypothesis. Culture hypothesis is theory that links both prosperity and culture. It says that only specific culture can bring prosperity and only they can be economically strong. But from the instance of South korea and North korea, you can clearly convince your mind that it is not the fact. On both sides there is same culture, both are koreans. The real fact is Institutional legacy which helps a country to grow and also become the reason to throw it's economy down.
Economy has deeper effect on the nation. It even effect the life expectancy of the people of any country. As economy is related with the resources available for the country.So, if there are not enough resources then they will suffer with different diseases and their life expectancy will decline.
Teenagers in North korea open their eyes in poverty and they don't get any chance to be creative. Also they are not allowed to start their own business. Moreover, for teenagers there is no proper education. Wealth is controlled by some elite families.
While on the other side of the line, South korea is far ahead in the education sector and encourages their teenagers to excel in their life. Everyone is allowed to buy cars and they are master of their own work.
South korea's government supports those activities which are helpful to increase the economy of state.
That's why many international companies are entering in South Korea and they want to do partnership with Country. In Contrast, In North Korea every activity is being monitored and people are not allowed to carry on their will. In North Korea there are Black market.
Difference in life is all due to rules which are designed by Insitutions.
So here comes the main point-
1- Extractive Economic Institutions
2-Inclusive Economic Institutions
Extractive Institutions
As the name itself is giving hint that these type of institutions are to extract resources from the public and they will just build castles with it. Extractive economic Institutions use power for their own purpose they do not disturb that power among individuals of the state. One important example is the one which i have described above, North korea.
Inclusive Institutions
Those institutions which are working in South Korea are Inclusive economic Institutions. Because they let their public to follow their dreams and they are free to fly. Inclusive economic Institutions allow secure propert and transparent law with facilities to nation. With the help of Inclusive institutions country achieves prosperity and it encourages prodictivity.
Inclusive Institutions brings the opportunity to build inclusive markets where people can do work according to their talent and they can follow that vocation which suits them. Inclusive institutions also play an important role in education sector and in technology sector. Sustained economic growth always due to technology and education and these all go hand in hand.You will see that those countries who are successful and prosperous have one thing in common and that is advancement in technology. For instance, Thomas Edison was American. Also it is South Korea which is producing innovative companies of technology like samsung. On the other hand, North Korea is lacking in it.
At last i want to add that it is the will of political leader that wether he wanted to see his country successful or a failing country.
Anyone can add his/her thoughts in it by sharing comment. What is the basic thing which is important to make a country successful? Tell me in comment section.
Source From Where I Got Ideas:
Book: Why Nations Fail by James A.Robinson & Daron Acemoglu
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