2. A Political Economy Theory of Growth Episodes

The second chapter describes a conceptual framework relating political economy factors to transitions in growth episodes, particularly accelerations, maintenance or collapses. The political economy factors are classified under (i) the deals space, that is, alternative informal institutional arrangements between the political and economic elites and (ii) the rent space, that is, the rent-earning possibilities in the economy. The framework argues that a transition from disordered to ordered deals space results in growth accelerations, but growth accelerations themselves usually alter the nature of the rent space, which in turn results in the deals space becoming either more open or more closed. More open deals trigger positive feedback loops so that growth is maintained, while closed deals trigger negative feedback loops resulting in growth collapses.