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Title: Second-Best Institutions

Author(s): Dani Rodrik

Publication Date: March 2008

Keyword(s): economic development and governance

Programme Area(s): Development Economics and Public Economics

Abstract: The focus of policy reform in developing countries has moved from getting prices right to getting institutions right, and accordingly countries are increasingly being advised to move towards "best-practice" institutions. This paper argues that appropriate institutions for developing countries are instead "second-best" institutions - those that take into account context-specific market and government failures that cannot be removed in short order. Such institutions will often diverge greatly from best practice. The argument is illustrated using examples from four areas: contract enforcement, entrepreneurship, trade openness, and macroeconomic stability.

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Bibliographic Reference

Rodrik, D. 2008. 'Second-Best Institutions'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6764