World Economic and Social Survey 2000

Trends and Policies in the World Economy

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Part one. State of the World Economy: chronicles a remarkable recovery in the world economy after the crisis years 1997-1999. Although the volume of international financial flows has not returned to its pre-crisis level, international financial markets are again displaying a sense of calm. International trade has also largely recovered from the setback it suffered following the financial crises. Part two. Escaping the Poverty Trap: identifies a number of critical steps for the poorer countries to break out of their “poverty trap” and find a path to sustained and sustainable development. The objective of part two is to identify some of the actions that countries can take to start a period of rapid and sustained growth that would allow living standards to increase appreciably over a relatively short period of time.



The role of institutions and institutional change

Institutions have always been considered central and indeed a prerequisite of development. Many philosophers from all different cultures have struggled over the centuries with outlining the set of institutions that assure material advance. While they have all helped build up the consensus that prevails today, a decisive theoretical advance took place in the eighteenth century, before the Industrial Revolution. Even before he wrote The Wealth of Nations, Adam Smith outlined in his other major work the kinds of institutions that would enable, inter alia, his “invisible hand” to function to everyone’s benefit. He showed that, without the appropriate institutions, progress would be thwarted and human wickedness would hold sway: “The characters of men, as well as the contrivances of art, or the institutions of civil government may be fitted either to promote or to disturb the happiness both of the individual and of the society. … What institution of government could tend so much to promote the happiness of mankind as the general prevalence of wisdom and virtue? … The fatal effects of bad government arise from nothing, but that it does not sufficiently guard against the mischiefs which human wickedness gives occasion to.”


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