Thursday, December 10, 2009
If you don''t have a theory of honey, you'll believe just about anything might be honey. This was our point in the introduction: You need a theory of which institutions matter and why before you know what to measure. When measuring a country's capital stock you make a decision about which structures are in and which are out. Factories? Sure. Museums? Probably. The shed in back of my house that stores my patio furniture and lawnmower? No. Why? Because you want that which leads to the production of goods, and you HAVE A THEORY of what kinds of structures do this and what kinds do not.
Do we have a theory of corruption? If so, what should we measure based on that theory? Same for trade openness, democracy, or any of the other things we think belong in a cross-country growth equation, inflation equation, etc. I don't know that answering this correctly ends our evolving cluelessness, but we think it's a good place to continue the search.