Does institutional structure in economies converge?

I just came across this paper by Richard Freeman of Harvrd University which made me sit up. Well to say institutions are important is now a cliche and their importance is in all facets of economics. So whether you talk about financial system or health care, having the right kind of institutions is really important.

There is wide literature showing institutional structure matters and how each country’s institutions have shaped up. However, very few actually compare the institutions across countries. This paper does exactly that in the field of labor economics.

Ideally, we should be expecting institutions across countries to converge and become more similar to the one that is the most successful. However, the paper shows that difference in institutions persist in labor markets in OECD countries.

It also reminded me of another economics field where we see divergence- Central Banking. The mandate of most Central Banks is to target inflation and the way they do it, differs  across countries. The independence of central bank, making monetary policies for their economies etc. is quite different from each other. The basic mandate itself may differ with some like Fed having dual mandate and  some like Bank of England only managing inflation. Even within inflation targeting central banks, there is wide difference in the way they approach inflation targeting.

It could be a research worth attempting to see whether the institutions involved in monetary stability are converging or not.


2 Responses to “Does institutional structure in economies converge?”

  1. Mostly Economics Says:

    […] had asked earlier it will be interesting to see how institutional frameworks in monetary policy  shape up. My […]

  2. Where money matters more ? Fed or ECB? « Mostly Economics Says:

    […] a post I had mentioned, it will be interesting to look whether institutional structures of central banks are converging or […]

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