# Economic Performance Through Time: A Dynamical Theory

## TL;DR

This paper develops a dynamic theory of economic development that clarifies the role of institutions, introduces new measures, and explains disparities and persistence in economic performance over time.

## Contribution

It offers a precise definition of institutions, a new measure of the economy, and a bivariate model explaining half of global economic disparities.

## Key findings

- A new measure of economic performance is proposed.
- A bivariate model explains 50% of economic disparities.
- A dynamic theory clarifies the role of institutions in development.

## Abstract

The central problems of Development Economics are the explanation of the gross disparities in the global distribution, $\cal{D}$, of economic performance, $\cal{E}$, and the persistence, $\cal{P}$, of said distribution. Douglass North argued, epigrammatically, that institutions, $\cal{I}$, are the rules of the game, meaning that $\cal{I}$ determines or at least constrains $\cal{E}$. This promised to explain $\cal{D}$. 65,000 citations later, the central problems remain unsolved. North's institutions are informal, slowly changing cultural norms as well as roads, guilds, and formal legislation that may change overnight. This definition, mixing the static and the dynamic, is unsuited for use in a necessarily time dependent theory of developing economies. We offer here a suitably precise definition of $\cal{I}$, a dynamical theory of economic development, a new measure of the economy, an explanation of $\cal{P}$, a bivariate model that explains half of $\cal{D}$, and a critical reconsideration of North's epigram.