WHAT DOES POLITICAL ECONOMY TELL US ABOUT ECONOMIC DEVELOPMENT—AND VICE VERSA?*

This essay reviews how three pillars of political economy—collective action, institutions, and political market imperfections—help us answer the following question: Why do some countries develop and not others? Each advances our understanding of who wins and who loses in government decision making, generally, but only a subset of this literature helps us answer the question. The study of political market imperfections strongly suggests that the lack of credibility of pre-electoral political promises and incomplete voter information are especially robust in explaining development outcomes. From the institutional literature, the most powerful explanation of contrasting development outcomes links political checks and balances to the credibility of government commitments.