Institutions, governance and economic development

Institution as an interdisciplinary concept which is used in a vast range of social sciences has a great importance in economics literature nowadays. Related to the North, we can define it as the rule of games, which means that institutions put constrains on individuals' behaviors. These constraints can be in formal forms as well as informal ones. That the human behaviors are designed by institutions is becoming a well-accepted idea day by day, therefore it is the same to accept the functions of institutions in economics and social process; its power on determining the losers and winners of society. This process with its different sides has been investigated by scientists. Several theories are constructed for understanding the relations between institutions and development level. Daron Acemoğlu is one of the economists who have important contributions to the institutional theory. He uses inclusive and exclusive institutions concept with social conflict theories for explaining the reason for that some countries have better development level in compare to others. Since these countries succeed in establishing political and economic institutions which have ability solve social conflicts in order to prevent elites' self interested behaviors for using societies' resources. Therefore incentives for investment and innovation can grow societies which have well protected property rights and gains. The most important problem for development is the fear of elites who do not want to lose their political power. This theory is called political losers hypothesis and it underlines the importance of political institutions accompanied with political power. In this study, political losers hypothesis was investigated as a case study for Turkey's history. The main result is that Turkey's exclusive institutions have inability to solve social conflicts which cause the governance problems. Additionally, the panel data analysis results support the informal institutions' effects on development and shows how it affects the changes related to development level.