Path-Break Versus Path-Drift: A Comparative Approach to Explain Variations in Institutional Effects on Economic Growth

Abstract

This study introduces a comprehensive model of institutional grafting wherein cultural, market, and political forces shape new legal institutions. The model is used to suggest that a country’s growth rates are a function of incongruence between legal institutions and the three forces. We demonstrate that incongruence is large in path-break but tends to be significantly smaller in path-drift. We argue that legal institutions are thereby instrumental to economic growth when a country drifts along the established institutional path and only modestly influence growth rates during institutional path change. In the latter case, the political dimension determines the success of both growth trajectories and institutional reforms. These propositions are tested empirically based on a sample of 106 countries derived from the POLITY IV Project’s website. JEL Classifications: O17, O43, O57, P26, P37