Chapter 1: Institutions and institutional change: concepts and theories

The ‘institutions matter’ slogan appears today as a fundamental truth about development. Widely shared by the development community, including international organisations, it goes with the idea that the benefits of both market operations and state interventions are significantly conditioned by the presence of effective institutions. An abundant literature in economic and political sciences, both theoretical and empirical, has recently suggested that the poor quality of institutions is an important determinant of low development outcomes and the persistence of poverty in the world. In many cases, existing institutions are not well adapted to the challenge of modern economic growth and development. This raises the issue as to how existing institutions can be reformed, which is especially thorny because they are often the embodiment of local cultures and historical legacies.