Market Economic Systems

Abstract

The new comparative economics focuses on individual institutions, rather than considering the economic system as an entity. In this essay we argue that economic systems should be defined in terms of clusters of complementary or covarying institutions. A cluster analysis of OECD countries, using data on forty different economic institutions, shows that four economic systems can be used to characterize these countries. These systems have no significant impact on economic growth or inflation, but they do have an important influence on the distribution of income. An analysis of systemic change suggests that the differences between economic systems become greater with economic development, while the among between countries with the same economic system become less, at least up to 1990.

Keywords: Economic system, economic institutions, OECD nations, economic performance

JEL Classification: P51, P10, C40