Institutions’s Role in Economic Growth and Development

Abstract

Institutions are fundamentally vital in the growth and development of countries, regions, or other sections with economic boundaries. Many researchers have identified, researched, and reported these roles due to the growing concern about the part taken by institutions in economic growth and development (EGD). Probably, there are many people with a growing notion about EGD regarding institutional participation. Consequently, the arguments laid hereby lay the basis to support and appreciate the presence of institutions for EGD. The arguments have considered solid aspects and examples to strengthen the core objective of delivering information. Also, it will provide answers and reveal the need of creating many institutions. Various dimensions have been applied to differentiate the disparities existing between institutions and their overall participation in EGD. This implies that some institutions play more critical roles than others in similar or different regions/countries/states. Furthermore, strong bases are laid from other published works and applied to develop substantial arguments. Additionally, theories postulated by researchers have been applied to depict the consistencies and reproaches of the allegations stated. Finally, the structures of institutions are evaluated through comparative techniques to evaluate how they address EGD.

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Introduction

What else apart from institutions? It is worth laying a question to relay the fundamental impacts of institutions in the nation. What would happen without education institutions? What if transport institutions were absent or unorganized? What would happen without health institutions? Siddiqui and Ahmed stated that the solidarity and complexity of the subject topic stand firm and unexceptional in all nations (295). Probably, the levels of effects and effectiveness of performance may differ between institutions. However, each legal institution participates to progress the nation through direct or indirect means. Some institutions can make foreign income through export. These are direct means that raise the economic status of most countries worldwide. In other cases, education institutions invest in the target of future economic appraisals. For instance, educated people can control the markets and monitor funds in and out of the nation. Educational institutions allow people to learn and internalize vital techniques of engineering, marketing, IT, driving, and construction among others. These specializations pave way for future economic development and human resource stability. According to Garside (2007:1), investments targeting long-term economic achievements are fundamental for overall EGD. Institutions exemplify the major sector for these investments.

Institutions are not only necessary by their sole presence but also the services they offer to the citizens. The existence of institutions raises the economic status of a nation. Furthermore, products and services presided by the institutions serve the citizen and stabilize the country. Contrary, the lack of these services arouses the need and demands for problem address. The people may arouse violence and strikes until the issue is addressed by the responsible governmental organizations. Growth is evident when the social status of a nation remains uncompromised by issues of instability.

Technology is an area growing rapidly throughout the globe. Institutions create channels allowing a nation to connect techniques and improve the economy. The connections appear within the nation as a uniting factor. The institutions buy ideas and facilitate development basing on the subject issue. The connections create unity and common interest amongst citizens to reduce the effects of racism or tribalism. Dispersion of information and knowledge about the roles of institutions for EGD has triggered substantive replays about the topic. Fast and efficient dispersion of information facilitated by the growing sector of information technology delivers a clear picture of the institutional roles in EGD. Disparities of countries’ institutional investments play a vital role in upgrading a country. Subsequently, a country that has invested heavily through high profit-making institutions is determined richer than others without similar facilities. The rich countries are an able call for investors because their country is stable. Additionally, investments rely on the current economic status of the country and foundations bestowed to support investments. If proper management to support and protect investors is applied, there will be income from willing investors. Therefore, institutions take vital roles in managing investment capital.

There many other institutions that play fundamental roles to develop and growing nations. For instance, there are industrial, communication, transport, security, and governmental institutions among others that cannot be excluded from a country’s development. They play substantial roles that provide for the needs of citizens and supply products to other countries for the benefit of foreign income. Identification the critical appliances of institutions can be identified properly by considering their absence. In other words, what would be expected of the EGD of a nation without the institutions? It will be noted that there will be insecurity, business failure, poor transport, illegal business, illicit product, poor education, injustices, and instability among other displeasing occurrences. The overall price of these occurrences would be nation failure and poor economy. According to North, historic events showed that most institutions do not trigger continued economic growth postulated through economic policies (98). Instead, North had described earlier that factors of production do not cause growth because they are growth (2). Their perspective delivered the argument that raising one factor, such as an institution, brings about economic growth. Other researchers recognized this statement recently by stating that the factors are proximate determinants (Acemoglu and Robinson 2008; Pamuk 23). Moreover, Frances found that well-performing factors influenced EGD positively (2).

Competition is an attribute that contributes to EGD. Institutions performing similar operations and possessing similar artifacts arise for competition when marketing their products. This facilitates the differentiation of products and the application of quality measures to retain incoming customers. Consequently, quality products are developed every day to satisfy customers. The institutions take considerable roles in ensuring that products are compatible with human consumption. The law institutions, in turn, modify direction to fit the prevailing developmental requirement. The trend of institutional reliability is endless. They form sequences of relationships that make each one dependent in a way. Institutional dependency sequences are inevitable in the current nation setups. Democratic nations have regulation to connect institutions and prevent independent decision making.

Although this applies squarely to the government institutions following legal directions or constitutions, it has remained apparent that every institution is affected by the activities of another in a nation. For instance, higher governmental investments to education institutions could arouse lower funding in the transport institutions. Also, other government, corporative, or individual businesses may be affected directly or indirectly. Direct affections could be exemplified by the stature of fewer funds to initiate new business institutions. It is, therefore, necessary to identify the target achievement towards EGD. However, all these effects do not prevent the institutions from fighting towards providing quality products and services to attract customers. Instead, they strive towards getting absolute attraction and facilitate their rise and advancement. In a bid to defeat the competitors, institutions invest in researches and discover new production strategies. Construction institutions are among the most growing institutions in the world. Their credibility revolves around developing the best techniques and architectural strategies to exceed an existing innovation.

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All these aspects and strategies require a deep understanding and explicit evaluation to show a clear picture of the role of institutions for EGD. Concurrently, an extensive approach has been performed hereby to show these aspects strategically. In a bid to perform this task, the arguments will lay bases by describing institutions, giving examples, referring to theories available, identifying institutional structures, and determining the regional disparities. These bases will depict their relations to the roles of institutions in EGD.

Definitions of Institutions and Methodologies to Measure

Defining Institutions

Under North, institutions are rules of the game in the society. They are devised humanly to structure human interactions (3). First, North identified and differentiated the causes of institutions. They are caused by the human being to serve them. It could be clear and true to postulate that institutions are obsolete without human beings regarding this statement. Consequently, the definition provides a clear and distinctive definition of parting ideas concisely. For instance, it would be inconsistent to assume that institutions are caused by climatic or geographic factors (Acemoglu and Robinson, 278). North stated wisely that institutions are “the rules of the game”. A game must observe rules to facilitate continuation. If the rules are disobeyed and disregarded, the game cannot continue. This particulate phrase delivers the message that institutions must be present to facilitate EGD. In 1991, North published that institutions are constraints devised humanly to make the interactions structure of politics, economy, and sociality (97).

Furthermore, North felt that this definition was unsatisfactory. It was necessary to state that humans had created institutions to establish order and mitigate ambiguity when exchanging. Probably, this was about the creation of trust from customers. According to Bates (1989), institutions were the only easy and efficient trust enhancers. Bates’s argument described that since institutions were managed through adequate dependency and reliability, chances of personal interests were minimal. This argument pointed out the risk that personal businesses pose to customers due to mismanagement. However, the definition of institutions today has been modified following developments such as rules and government policies. For instance, an institution must comply with government policies binding other institutions. North had not stated that some aspects could not apply to the definition provided. However, legal qualifications are intricate before naming the prevailing institutions. Institutions are established to serve people. Concurrently, they must be subjected to comply with the government regulations to ensure that citizens are not exploited.

North (1990) identified the need for clarity regarding the distinction between institution and organization. Various similarities were identified between these terms. The articulations describe that organizations and institutions allow human interactions. North stated that organizations are comprised of groups of persons possessing a similar purpose and targeting to attain objectives (4).

Initiation and establishment of institutions are variable following the prevailing circumstances. An institution could develop from other activities over a period. Otherwise, the institution could arise from the beginning through creation (4). For instance, a government could realize the need of establishing an educational institution for higher learning. In 2000, Williamson provided a hierarchical categorization of institutions that considered various aspects and disparities. The four-level hierarchy starts with an inferior group of institutions that entangle with a traditional attribute such as culture, customs, and traditional aspects. The institutions are prevalent in Africa among other countries lying under the same development status. Usually, other stages are partially incompatible with these countries. The second level incorporates a phrase of North (1990) “the rules of the game”. This stage emphasizes on property rights of institutions and comprises more formal institutions than informal institutions. The third level is more complex and advanced than later. These institutions involve the governance of the nation. They form sequences that lead to the formation of an integrated service system for the governance structure. Finally, the topmost level comprises institutions that take roles in allocating resources and making adjustments regarding price (613).

There are other classifications described by other researchers. Jutting, (2003) presented a 4-stage classification that included economic, political, legal, and social institutions (14). A recent definition by Acemoglu and Robinson (2008) describes an institution as a department, a sector, or an organ that has declared to perform a designated role within a given jurisdiction officially. This means that institutions may be made of a group of people or companies of similar interests that work together to ensure the achievement of goals. It is necessary to explain that these groups must be registered by the ministry or department of social services or local authorities responsible for giving licenses to various social, economic, and political groups. This definition has aspects showing that it has a direct adherence from the previous works of North (1990).

Methodologies to Measure

Researchers have made countless contributions to discuss the roles of institutions explicitly. Although each research pays attention to particulate issues lying amongst different research fields and techniques, the overall outcomes are overwhelming. The most prevalent strategies targets at substantiating the institutions that have the most significant influence of EGD, comparing the institutional qualities (Danish and Ahmed 3) and institutional variability concerning roles performance. The researchers have applied a diverse technique to investigate their hypotheses. Application of surveying techniques, such as interviews, use of questionnaires, and review of materials from government records, has been applied. Also, the term of strategic study about institutions has created awareness amongst people and facilitated a rise of curiosity that has been assessed. Learning through experiences and arousing curiosity to experts was a strategy applied to deliver information through interviews.

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In other researches, integrated research studies have been performed to reveal the vitality of institutions in EGD. Some researchers have performed case studies (Degirmenci 2011) to show how the distinctions of institutions could be influential to EGD (2). For instance, the case study performed by Degirmenci evaluated a case between two Turkish institutions to retrieve the variances existing in their operations. Information technology has created easy and accessible strategies to interview people. Many interviews are performing worldwide interviews over a large area. However, the interviews take short time and utilize less capital. Moreover, visual interviews have been facilitated by a webcam call such as Skype. These strategies have been applied since inception and their integration in the market. The researches of roles of EGD are diverse and integrated. Although the earlier researchers were not able to access a lot of information, recent researchers have applied fast and diverse techniques.

Statistical analyses were performed and analyzed substantially to rely on definite allegations. Their main target paid particular attention to the leaders and experts before involving the general public. Probably, this is attributed to the point that the general public has less knowledge about EGD. However, the strategies applied have been criticized by other researchers. Glaeser et al. (2004) retaliate that measuring the outcome of occurrences is not substantial. They recommend that substantial techniques depicting the actual characteristics of the subject issue must be applied for coherent and substantive results. Furthermore, outcomes are affected by many other factors. Consequently, the outcomes are reliant on chances and cannot stand unopposed.

According to Degirmenci (6), the quality of services and extension to the economy depicts much about an institution. In this response, Degirmenci noted that a study on institutions could provide relevant data for the evaluation. Consequently, the strategy was applied when discussing the topic “Do Institutions Matter…” (1).

Literature Survey

Researchers have investigated and assessed the roles of institutions in ECD. This topic is, therefore, guided by earlier scholarly works. A close examination of the findings and studies performed shows concrete similarities and distinctions that arouse the need for further research. They have recommended additional researches to succeed in their findings (Acemoglu and Robinson 29). Evaluations and reviews from these works imply that there are significant controversies of ideas. There are differences in techniques applied when collecting data. These differences arise following the research strategies selected by the researcher. This could explain the differences of views regarding the role of various institutions in EGD. This section will review the works that researchers have published to deliver their idea about the roles of institutions in EGD. Consequently, the coverage will be broad and covering substantive materials from published scholarly writings.

Theoretical Background

Costa and Lamoreaux stipulated that most developed nations understand the role of institutions in economic development because they enabled them to improve economic growth immediately after the Second World War (143). Costa argued that integrating the roles of various institutions with the economy of a country is tough. Contrary, Feinman identified that most nations and societies are very primitive. Consequently, they continue to hold traditional ways that have devastated the economies of these nations (54). Feinman noted that the benefits of tradition are substantial if they assist the society to advance. The work of Feinman shows absolute disapproval of cultural aspects that hinder the realization of society’s goals. Issues addressed show inferiority of barter trade due to limitation of space and time. Additionally, Feinman reveals the logging behind arising due to the hindrance of international marketing techniques. Furthermore, the lack of competition introduces products of poor quality and low improvement. Agricultural institutions of these countries investigated by Feinman were determined uncompetitive to initiate EGD.

According to Fitzgerald (2012) institutions are reliant on proper leadership strategies for proper EGD (232). The stipulations are supported further by the explanations recognizing the presence of two ways allowing society to develop its economy i.e. democratic leadership. Russia and France experienced various challenges after their economies were destroyed during the First and Second World wars. However, desires to develop their economic status made them take appropriate revival techniques. They initiated a sound democracy and initiated institutions to allow investment. This aspect stabilizes the economy of these nations. Therefore, the government of that day experienced serious challenges in convincing political leaders to follow some procedures for implementing development policies. Most opponents were not willing to side with the government even if it was on the right side.

This means that it was extremely difficult to agree on simple regulations that were important in promoting EGD. The author emphasized that leadership is critical to all nations with desires to propel towards prosperity. Fitzgerald claimed that democracy was a vital political aspect to exemplify proper institutional leadership. It enables the population to adopt efficient ways of developing their economies by promoting accountability and responsibility among public officers (Fitzgerald 18). This aspect is further supported by Acemoglu and Robinson (29) through a postulation stating that a country’s development must consider stabilizing institutions and ensuring the active role of institutional leaders. Furthermore, Fitzgerald highlighted that opposition leaders focus their attention on scrutinizing their governments and forget that they should participate in building their nations. This is an issue raising high concerns because most leaders pay attention to their personal needs and forget to serve people. Therefore, this issue requires a comprehensive address to ensure that a nation does not fail due to institutional failure.

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Other researchers approach the role of institutions from an individual point of view. For instance, Tridico noted that people play significant roles in developing their societies. Talents, skills, and abilities could be applied to promote efficiency at work and lead to improved productivity. ECD begins with human development through empowerment programs (Tridico 31). It is, therefore, worth highlighting the need of equipping people with relevant skills and knowledge to understand the surrounding.

This implies that enlightenment about EGD is vital regarding establishing reasons behind acting properly to develop a country’s economic status. According to Tridico, once people realize the challenges facing their institutions, developing management strategies towards controlling various institutions to ensure that society develops will be easy. Besides, personal greed, incompetency, laziness, and personal interests were identified by Tridico as the key problems hindering various institutions from achieving their goals.

Rodrik (2008) argues that different nations have distinct economic status. Consequently, the role of institutions is not similar in all nations. Some countries might require specialized techniques when discussing their relationship between the institution and EGD (64). Some nations use local institutions to advance their interests arousing a serious challenge to EGD (65). In contrast to Tridico, Rodrik stipulates that there is hope for robust development of the economy in the most undeveloped nations. The discovery of minerals has indeed established institutions that raise the economic status of poor countries. Furthermore, human resource has an immeasurable potential to transform and raise the economy of a nation. This implies that a nation could apply human resources to compensate for the lack of natural endowments (Rodrik 76).

This is a simple expression showing how people are important assets in developing their nations. It was emphasized by Bhattacharyya after stating that workers are the core of institutional stability (113). Rodrik’s presentation describes that institutions are the most critical resources when applying human resources. Whatsoever, poverty and unemployment are inevitable in these developing nations. They are serious threats that lead to exportation and the idling of skilled manpower. His main assumption is that people have adequate potentials to transform their societies and develop their economy through intellectual property. This belief has been criticized widely due to the challenges facing nations with many graduates but less application of the knowledge available (Rodrik 79). Some critics have argued that education is not necessarily a guarantee for performance in presence of other factors such as remuneration, morale, work conditions, and availability of adequate capital. All these play central roles in determining the rate of EGD.

Hansson highlighted the need to have democracies, transparency, and accountability in governance as a good way of promoting economic growth. He notes that most nations are underdeveloped due to poor politics and leadership (90). This means that most political institutions like leaders and political parties are not willing to develop their nations. He joins other critics in claiming that democracy should not be used to hinder the implementation of government policies at the expense of economic challenges. This means that most societies have embraced democracy without understanding their responsibilities in promoting national growth and integration. His discussion highlights the need to have robust institutions that are based on performance, transparency, and accountability and not other interests. He is categorical in claiming that people can make or break their economies depending on their political choices (Swensen 112).

He argues that most citizens have been arm twisted to elect incompetent and corrupt leaders even though, voting is a democratic process. He claims that nations must have efficient political institutions to ensure party politics do not affect the performance of public officers. He highlights the need to establish stringent regulations that draw lines between politics and national issues since this seems to be the cause of all political evils. Even though, he appreciates the role of politics in national development he notes that it is very difficult to achieve EGD if political leaders continue to hold divergent views even when they have been elected in various offices. Therefore, he claims that political leaders should stop dreaming about other political ambitions and forget that they should prove to the electorate that they can perform better than their competitors (Hansson 41). However, this is not an easy thing to achieve since all politicians perform their roles with eyes fixed on the next elections. Therefore, they will only do what will increase their reelection chances no matter how beneficial or irrelevant their actions may seem to the electorate. Hansson notes that politics can be used to promote economic development if the participants are willing to set aside their interests and work towards achieving national goals.

Some researchers claim that traditional societies are marked by inefficiencies in the production process due to the use of crude tools. Therefore, their economies are very poor and cannot sustain society unless people work very hard (Rodrik 88). Therefore, this is the first stage that shows the need for alleviating challenges facing people in society in terms of poor technology, insufficient food supply, diseases, and other social challenges. This society is not exposed to the world and thus has localized its trading activities. Also, Rostow argues that after society has identified the need to adopt new ways of producing various goods and services it starts to develop its operations to reflect a national or international perspective. This is where people establish institutions like schools, markets, and infrastructure to enable them to gain skills, sell their products, and move freely respectively. These are usually the preconditions that show society is ready to start developing. This stage also involves the establishment of rules and regulations that will govern human relationships. It is necessary to recognize Falkinger and Grossmann who identified that people from one community can interact with those from other communities regardless of different cultural practices (253).

This necessitates the need to establish laws that will govern their interactions. Therefore, legal institutions are established to manage all issues that are related to inter-societal conflicts. This creates a level ground for players to actively participate in trade activities without fearing that their rights may be violated. The third stage involves the process of development and it is marked by the introduction of modern technology in almost all sectors including transport, communication, agriculture, and trade. This is a short period that involves rapid growth, and expansion of faculties and institutions promoting growth. Urban centers start to develop near production facilities like commercial farms or industries ad there is a movement of people from the community to other new settings. Also, learning institutions become very active as demand for trained workers continues to push people to seek education. This theory concludes its discussion with the last stage of development where institutions have matured and there is a high consumption necessitated by an increase in population and demand for goods. Also, communication and marketing channels start to advertise local products in foreign markets. This theory explains that EGD does not occur in isolation from other activities. This implies that the institutions responsible for EGD affect other areas of human life including transport, education, and agriculture among others. Therefore, this growth is accompanied by developments in other sectors.

The Harrod-Domar Growth Model explains how socialites have achieved EGD. The model suggests that if a society wants to develop, it must save and invest in profitable activities that will generate income and profits (Hansson 73). This means that there is no way a society without income can develop due to a lack of investment funds in various activities. Therefore, a nation must have high levels of savings that will enable it to use the funds in development projects like the construction of new permanent roads, installation of electricity in rural areas, and provision of security for investments that facilitate economic growth. Also, it was proposed that there must be a high capital-output ratio referred to as the productivity of capital investment. This means that society must have a low capital-output ratio to have a lot of money for investment in other activities. However, a high ratio depicts that society will be spending a lot of money on investments with insignificant returns.

Therefore, the percentage of the gross domestic product is a significant determinant of whether society will develop or not. It is important to ensure that there is a low capital-output ratio to facilitate economic growth because the money to invest in new activities or expansion will be available. This theory is an effective way of explaining how nations can achieve EGD even though the following are some of the criticisms facing its application. First, the theory has serious assumptions that make it unsuitable in explaining how nations can achieve EGD (Fitzgerald 13). The first assumption is that people have income and thus they are ready to invest it in various activities. This assumption is a serious diversion from the truth since all nations in the world are struggling to create jobs and lower the cost of living. This means that most people are jobless and thus they do not have money to invest. Secondly, the cost of living is very high meaning that few people can invest their money in businesses as the rest struggles to live within their budgets (Maginn 45). Therefore, the theory’s assumption that people have idle money is a serious weakness failing to consider other issues determining the rates of investments.

Other theoretical frameworks emphasize the availability of free markets as the key to EGD. Michael Friedman believed that all economies have the potential to grow if the major players allow traders to move freely and participate in various activities without being restricted. Neoclassical theory assumes that traders should be given the right to do their activities without restrictions. It argues that this is the best way of ensuring the generation of income (Martin 372). Also, the theorist believes that all business activities should be managed by individuals and not the government since this will promote market efficiency. He claims that the government should not participate in a profit-making exercise since this will transform it into a capitalist regime. Therefore, he suggests that all business activities should be managed by private investors and the government should just play supervisory roles.

He argues that governments should privatize its institutions that play significant roles in the economy. This ideology is motivated by the belief that private entities are managed well compared to public institutions. However, this approach has serious assumptions that make it an inappropriate way of perceiving EGD. First, it is important to explain that the possibilities of having a free market even in the developed nation are close to zero. The disadvantages of the free market are mammoth and if continues to thrive it will reintroduce capitalism and dictatorship. Besides, other market evils like smuggling, dumping, and unhealthy competition will set in and this will threaten local industries. It is important to note that most developing nations have few local industries and thus they must be protected against unhealthy competition from multinationals. There is no way a country can boast of economic development if most of its investments are owned by foreigners; therefore, this means that the economy of such countries is usually controlled by foreigners.

Secondly, this theory does not highlight the need to protect sensitive production activities that cannot be left in the hands of private investors. Issues like the supply of military training equipment cannot be left to the individual. Also, the production and supply of some goods can not be left to be managed by private companies. Also, the government must take active roles in regulating the standards of goods produced and distributed within its borders to ensure consumers get quality goods. Substandard goods have always led to health complications and death and thus the government must protect its citizens against such activities. Lastly, hoarding and unnecessarily high prices are common in regions where business activities are managed by private investors. This means that private companies are focused on making profits at the expense of the high rates of poverty, inflation, and unemployment experienced by the majority of the population. For that reason, the government must establish institutions to ensure business activities are regulated. They may include the bureau of standards, consumer goods, import departments, and licensing sections that will ensure local business activities are done following the law. Therefore, this theory is not an effective way of explaining how institutions can help in EGD.

Empirical Studies

The prevalent incidences of institutional roles towards EGD are beyond mere recognition. Serrano and Pose have shown that these institutions have enabled most nations to achieve their development goals and develop effective strategies to manage challenges associated with future developments in this field (413). The United States has established institutions to deal with drug trafficking and the smuggling of contraband goods. The immigration department conducts thorough scrutiny on all immigrants to ensure they have not carried any prohibited goods. This means that the economy of this country is not threatened by contraband goods since there are adequate measures to curb this problem. Besides, this country has many learning institutions that offer quality education to many students. This ensures that the future generation is equipped with relevant knowledge to manage various issues that may affect their lives.

Therefore, they are prepared to face the future without the fear of uncertainties. The criminal justice system is well developed to ensure all suspects are presented before a court of law and cross-examined. Those found guilty are forced to pay fines, imprisoned or punished in ways that will discourage other offenders from committing economic crimes. The crime prevention and fraud detection n department have on various occasions detected fraudsters and prosecuted them. The criminal investigation department is actively involved in pursuing suspected criminals and those who engage in economic crimes. Lastly, this nation has an active congress that ensures it passes bills that will help the country to achieve EGD even when an economic crisis affects the part of its operations. Therefore, this shows that this country has responsible institutions that ensure its policies and regulations are respected by everybody. This leads to EGD since additional jobs are created by the increase in investment opportunities.

Another case study is the use of anti-money laundering policies in Australia to curb drug trafficking. It is important to note that some unscrupulous traders have always used any slight opportunity to exploit their countrymen by failing to pay taxes even though their investments are worth millions (Yeager 456). This means that some people collude with local authorities and fail to pay taxes and continue with their operations. Nations rarely on traces to support their operations and when individuals fail to pay this money it means that a country may be forced to borrow from the World Bank. This is a sad situation given the fact that most businessmen are making huge profits and do not pay taxes. In recent years, Australia has been facing this problem that slowed its EGD since it had not sufficient funds to finance some of its projects. However, this situation has been controlled after the establishment of the money laundering policy and the department under the national security docket. This section has trained its officers and provided them quality technology machines to ensure they monitor all trading activities within and across its borders. Also, this department is working with banking institutions and estates to identify suspects that use fake names to save their money in foreign banks. Also, various volunteer groups ensure they keep their eyes on people that have dubious characters. This is an effective way of ensuring that all government and private institutions are actively involved in promoting EGD.

Institutional Structures and Regional Disparities

Dale and Nielsen identified that researchers avoided making of exploration to the internal structures of institutions (1). What are comprises institutions? How are they set? What are institutions in terms of structure? How are institutions constructed? Most researchers have paid particulate attention to the description alleging that the structures affect EGD. However, they raise curiosity by leaving the critical issues of institutional structuring (Williamson 381). In this section, a contribution towards answering these questions has been provided.

The complements of institutional have several critical compliments. Institutions must have workers, customers, managers/leaders, and the owner(s). Some policies regulate institutions to provide quality services/products. However, copious differences in structures and institutional approaches were described by Acemoglu and Johnson (964). These disparities are attributed to varying institutional and governmental policies, fluctuating economic status, and the level of a nation’s development. Also, formalities are vital when determining the structures and disparities of institutions. For instance, formal institutions are common in developed countries. On the other hand, informal institutions are evident in developing countries because these countries are incompatible with other formal institutions.

Grabowski stipulated that the complexity of an institution rises towards a central point (48). For instance, most institutions will be found in cities or towns. On the other hand, the dispersion widens away from the central location. Also, Martin noted that civilization is more prominent in the cities than in local places (370). Consequently, institutions’ complexity and integration become serious and solid accordingly. The firmness of issues could be assumed at local institutions. However, the disparities are significant for similar offenses performed on central regions. Similarly, the EGD starts from where the institution has been located. For instance, if an institution is located in a local area, it would be expected that shops will be set to serve people who come visiting. Probably, the road could be constructed to provide effective transport to the institution. The overall development will concentrate on that area due to resources. However, dispersion initiated by the government could prevent the consolidation of resources into one area. These aspects establish huge regional gaps in terms of facilities. They are caused by institutions’ allocation to one area whereas other areas are disregarded. Initiating the development of a whole region and prevent dense populations, it is vital to consider distribution institutions all over a target region.

Conclusion

Institutions are critical in defining the development of a nation. They play vital and unexceptional roles that control the EGD of a nation. Proper strategies allow a nation to grow together without having regional disparities (Subramanian 207). However, these techniques can only be positioned during developmental stages. Otherwise, developed countries cannot control the growth of a country under one region without investing heavily (Mitchell 58). Consequently, the leader of developing countries should apply these strategies before they are inapplicable.

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