Question

Which of the following arguments is consistent with the institution hypothesis as the fundamental cause of prosperity?

1. Parts of the world that were relatively more prosperous 500 years ago have experienced a reversal of fortune because of the extractive institutions established by European colonialists.
2. The economic performances of divided countries such as North and South Korea.
3. Foreign aid will not be effective even if it were increased in size.
4. All of the above

Explain your answer.

Answer 1

option d would be the answer because of  the fundamental cause of prosperity

(1) Geography – exogenous differences of the environment & climate, Institution now and 500 years ago

(2) Culture –before the Separation the culture was the same in North and South Korea and after Separation in 1948 the culture is different in both country. GDP growth of South Korea is higher than in North Korea.

(3) The causal effect of foreign aid on growth can be shown by relies on variables that are based on the size of the recipient country’s population to predict how much aid a country receives, past values of aid to predict current ones and the recipient’s political connections to their donors. None of these strategies meets their goals.