Classifying Institutions Based on the Neoclassical Theory of State : A Review

There is a dearth of theoretical literature defining institutions and identifying the channels through which institutions influence economic welfare. Moreover, empirical studies done on the same topic also showed a positive and significant impact of institutions on macroeconomic performance. However, empirics rely upon institutional aggregate that might measure different concept at the same time. So in order to establish which theoretical concept is valid on empirical ground is a challenging task. North (1981) classified institutions into to broad categories. Hence, different theoretical concepts can be combined into broad theoretical dimensions. This would also conform to various institutional indicators measuring different concepts belonging to the same dimension. This study attempt to classify different theoretical concepts of institutions into two broad categories based on the neoclassical theory of state as proposed by North