Institutions – the backbone of technological change

The role of institutions for economic growth and development was first identified in the seminal work of North (1989) and has been an active field of research in economics since then. Institutions provide a framework for economic processes, sometimes described as the skeleton on which different aspects of economic activity is built. The effect of institutions is especially interesting when attached to large-scale trends taking place in the global economy such as digitalisation or climate change. In my research (e.g. Baccianti et al. (2022) and Labhard & Lehtimäki (2022)), the interactive effects of digitalisation are studied together with institutional aspects of countries in different stages of economic development.

The beauty of studying institutions is that they are especially relevant for policy-makers. For example, a high degree of bureaucracy slows down the adoption of new technologies, which affects real economies and economic activity. We all have experienced frustration in our lives when something bureaucratic appears to advance slower than we would prefer – my research attempts to study what the underlying reasons for this slowness are when it comes to some of the major on-going technological changes in the world.

The swift and efficient introduction of new technologies to actual use has huge economic benefits but also benefits for individual users – people often want to gain access to new features as early as possible but these features can also provide benefits, which improve the well-being of users. Information and services accessible to us through advanced mobile phones is something that would have been considered science fiction just 20 years ago.

Jonne Lehtimäki
The writer is an Economist in the Ministry of Finance of Finland. He is also a PhD candidate in the University of Turku and works as a consultant for the European Central Bank. In his research, he focuses on applied monetary policy, the effects of fiscal rules and questions of digitalisation.

References

Baccianti, C., Labhard, V., & Lehtimäki, J. (2022). Digitalisation, institutions and governance, and diffusion: Mechanisms and evidence. ECB Working Paper series, 20222675.

Labhard, V. & Lehtimäki, J. (2022). Digitalisation, institutions and governance, and growth: Mechanisms and evidence. ECB Working Paper series, 20222675.

North, D. C. (1989). Institutions and economic growth: An historical introduction. World Development, 17(9), 1319-1332.