This blog post makes an analysis of the question “Why are Some Nations Rich and Others Poor?”. The relationship between institutions and nations is explained via this blog post.
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Introduction to Rich & Poor Nations
The question “why are some nations rich and others poor?” has probably been asked by most of the people who is into economics. This question can be answered in terms of many different aspects as there are many factors that affect the wealth of a nation. One of the most important aspect is the institutions. This short essay explains why institutions are important in answering this question.
Good institutions affect the wealth of a nation in many different ways. First of all the meaning of a ‘good institution’ should be defined; What makes an institution good? In my opinion, a good institution is the one that approaches everyone equally and where everyone feels happy. In this context, institution refers to all the practices that contributes to the economy of a nation.
Good Institutions and Nations
So, how can an institution contribute to the economic level of a nation. The answer is simple; If the institutions of a nation are good, they motivate people in the nation to work hard. If all the people in a nation work hard and push their limits, the nation will become economically productive. The single productiveness of the people will add up and the wealth of the whole nation will increase.
Good institutions do not only motivate people to work hard. In addition to the motivation issue, good institutions of a nation protects all the rights of every single member of the nation, gives opportunities to invest money and control money and lastly controls inflation and currency exchange rates. When all these factors add up to each other, the nation comes up with a well controlled economy and thus wealth.
Can Institutions Make Nations Rich or Poor?
Institutions may make the nations both rich and poor as explained in the first part of the questions. Institutions are generally known to be affecting the economy in a positive manner but we should bear in mind that the institutions have both merits and demerits. This short essay will explain those merits and demerits of the institutions respectively.
To start with the merits of the institutions, the first advantage is about the new companies. When the new companies find it difficult to raise money from the public, they can get some help from these institutions. In addition to this, the experienced institutions may give assistance to the new companies to make them more profitable. The assistance and financial help to the new companies will boost the economy and the country will become wealthier.
As a second merit of the institutions, they can give guidance on the projects. To conduct a process in a successful way, the guidance of an expert is vital. The experienced institutions may give guidance on the projects and so the projects can be carried successfully. This successful guiding will help the projects in terms of successful planning and administration.
On the other hand, the institutions may have some demerits and they may affect the financial issues negatively. The first demerit of the institutions is about the autonomy of management. The powerful institutions can become a restriction in front of autonomy of management. For instance, they may insist on their nominees to the board of directors of a company and this is a great restriction for the companies.
Lastly, the institutions have a lot of formalities and details in documents which make things difficult. The institutions make very detailed investigations and this is a very long and difficult process to proceed.