Essays on institutions and economic growth

This dissertation consists of three essays on the role of institutions in economic growth.; The first essay studies the relationship between inequality and economic growth. This is done in a two-sector model of endogenous growth with agents characterized by heterogeneity of factor endowments. The private sector produces the only final good in the economy. This good is both consumable as well as accumulable. The government is seen to produce a productive factor interpreted as infrastructure. Infrastructure is both nonrival and accumulable. Infrastructural services flow into the production of infrastructural stocks as well as the final good. Capital used for infrastructural production is financed by the government by taxing capital income. The choice of the growth rate is determined by the tax rate on capital income. We study the choice of the economy's growth rate under a median voter democracy. The results show that inequality of the distribution of capital does not hamper growth.; The second essay studies the role of government policy in underdeveloped credit markets. Nationalized banks in poor countries often ration rural credit. This creates demand for loans from monopolistic landlords/moneylenders who often interlink credit and product contracts allowing the latter to extract more of the tenant's consumer surplus. In the presence of asymmetric information such arrangements can be inefficient. We find that increasing the fixed credit allocation to the rural sector at a subsidized rate does not reduce that inefficiency. The moneylender extracts the entire benefit of the subsidy. An alternative policy of providing credit at competitive rates but in a flexible manner is more effective in reducing the inefficiency.; The third essay studies the effect of endogenous time preference in a simple neo-classical model of growth. The variation of time preference causes the economy to have multiple steady states, some of which are similar to poverty traps. The stability properties of these steady states are analyzed. The results are interpreted in light of the growth experiences of developing economies. The model can explain why two economies that have identical production technologies and identical preferences may converge to different levels of income depending on initial conditions.