Question

Economists argue that some environments are more conducive to economic growth than others. One of the ways economists differentiate one environment from another is in terms of its institutions. An institution is “the rules of the game in a society or, more formally, the humanly devised constraints that shape human interaction: the rules and regulations, laws, customs, and business practices of a country.” Do you agree that institutions are conducive to economic growth? If so, how? Briefly discuss.

Answer 1

Business environment affects the business in one sided manner. There are very scant chances that enterprise affects business environment. Conducive environment can contribute towards the profitability of business.

A country which has strong democratic rules and regulations are hold constitutionally, then it promotes political stability which is inevitable for successful business. Further, if contracts are honestly enforced, then it promotes investments and economic activities.

Country where laws and contracts are not enforced in right perspective, businesses do not thrive in such environment.

Further more, social customs and human interactions are major non-economic factors that affect business in most profound manner. A country where traditional values and customs are not agile enough, business can not thrive in such environment.

To sum up, these institutions are most critical for gaining high growth rate. these institutions do not act favorable in developing countries, hence growth rate is retarded in such countries.