Institutions are understood as formal and informal rules and regulations. They include tax laws, legal regulations, political freedoms, ethno-linguistic fractionalisation, religion, and infrastructure. Schools represent institutions that will influence both growth and wider development outcomes.

The term “Economic Institutions” refers to two things: The Internal Revenue Service (the IRS—the government tax-collection agency), the U.S. Federal Reserve (the government producer of money), the National Bureau of Economic Research (a private research agency) are all examples of economic institutions.

Institutions are the humanly devised constraints that structure political, economic, and social interaction. They consist of both informal constraints (sanctions, taboos, customs, traditions, and codes of conduct), and formal rules (constitutions, laws, property rights).

formal actors. statutory or constitutional responsibilities (aka government/representatives) informal actors. participation with no explicit legal authority.

Informal institutions are those that are not designed to regulate conduct, but often end up doing so as members seek to conform to communal standards. Institutions can also be abstract, such as the institution of marriage.

Institutions determine the costs of economic transactions: they spur development in the form of contracts and contract enforcement, common commercial codes, and increased availability of information, all of which reduce the costs of transactions, risk, and uncertainty.

Do Institutions Cause Growth? We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed.

Economic institutions are responsible for organizing the production, exchange, distribution and consumption of goods and services. For the sake of survival each society has an economic system ranging from simple to complex.

Let us see what the basic institutions of the market economy are. We may subdivide them for convenience of discussion into (1) private property, (2) free markets, (3) competition, (4) division and combination of labor, and (5) social cooperation. As we shall see, these are not separate institutions.