Institutional Grafting as a Three-Dimensional Phenomenon

This study introduces a comprehensive model of institutional grafting by examining the formation of legal institutions as shaped by three forces: (1) cultural, (2) structural, and (3) political. The model is used to argue that a country's growth rates are a function of the distance that new legal institutions develop to these three forces. We demonstrate that the potential size of such distance varies depending on the phase of institutional change in which legal institutions emerge: drift/evolution or critical junctures. When a country drifts along the established institutional path, the distance is likely to be minimal, enabling rapid economic development. When a country changes its institutional path, the distance proves large and hinders economic growth. These propositions are tested empirically based on a sample of 53 countries for the period from 1996 to 2008. The post-communist transition is used as an example of critical junctures.