Invited to Develop: Institutional Belonging and the Counterfactual Architecture of Development

TL;DR

This paper introduces a counterfactual framework using generative adversarial networks to quantify how different institutional affiliations could have impacted the long-term development of Spain and Uruguay.

Contribution

It develops a novel counterfactual simulation method based on economic complexity and institutional networks to assess structural development gains or losses.

Findings

Spain would have declined in development under Latin American institutions.

Uruguay could have achieved higher complexity within a European regime.

Development depends on structural position within transnational institutional networks.

Abstract

This paper examines how institutional belonging shapes long-term development by comparing Spain and Uruguay, two small democracies with similar historical endowments whose trajectories diverged sharply after the 1960s. While Spain integrated into dense European institutional architectures, Uruguay remained embedded within the Latin American governance regime, characterized by weaker coordination and lower institutional coherence. To assess how alternative institutional embeddings could have altered these paths, the study develops a generative counterfactual framework grounded in economic complexity, institutional path dependence, and a Wasserstein GAN trained on data from 1960-2020. The resulting Expected Developmental Shift (EDS) quantifies structural gains or losses from hypothetical re-embedding in different institutional ecosystems. Counterfactual simulations indicate that Spain would have experienced significant developmental decline under a Latin American configuration, while Uruguay would have achieved higher complexity and resilience within a European regime. These findings suggest that development is not solely determined by domestic reforms but emerges from a country's structural position within transnational institutional networks.