Extractive vs. Inclusive Institutions
A prominent theory in institutional economics classifies institutions into two main types: extractive and inclusive. Extractive institutions are designed to enable a small group or elite to extract wealth and resources from the rest of society, often characterized by a lack of property rights and the rule of law for the majority. In contrast, inclusive institutions provide broad-based protection of private property, enforce contracts, and create a level playing field, encouraging investment and innovation from a wide segment of the population. This distinction is often used to explain the vast differences in long-term economic prosperity between nations.
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