World Development Report 2002: Building institutions for markets
Market reforms have had a mixed record at promoting growth, increasing productivity and alleviating poverty in developing countries across the world: from considerable success in some parts of East Asia, Latin America and Central Europe to disappointment in parts of Africa and the former Soviet Union. This has led policymakers to ask: Could market reforms do more to improve living standards if greater attention were devoted to developing institutions to support markets? What are the institutions which make markets effective in delivering inclusive growth and how do countries get these institutions? The World Development Report 2002 "Building Institutions for Markets" addresses these questions. In particular, it discusses how it is that only countries with efficient and inclusive markets have seen significant income growth and poverty reduction. A key factor in developing such markets is market-enhancing institutions, which perform three essential functions: reduce information asymmetries; reduce the costs of dispute resolution/contract enforcement and to enhance competition in markets. Chapter 5 on "Political Institutions and Governance" discusses how political institutions shape governance around the world by setting limits on the ability of the state to exercise its power arbitrarily.