…[T]he large differences in per capita income across countries cannot be explained by difference in access to the world’s stock of productive knowledge or to its capital markets, by differences in the quality of marketable human capital or personal culture. Albeit at a high level of aggregation, this eliminates each of the factors of production as possible explanations of most of the international differences in per capita income. The only remaining plausible explanation is that the great differences in the wealth of nations are mainly due to difference in the quality of their institutions and economic policy. …
…Though the low-income societies obtain most of the gains from self-reinforcing trades, they do not realize many of the largest gains from specialization and trade. They do not have the institutions that enforce contracts impartially, and so they lose most of the gains from those transactions (like those of the capital market) that require impartial, third-party enforcement. They do not have institutions that make property rights secure over the long run, so they lose most of the gains from capital-intensive production. Production and trade in these societies is further handicapped by misguided economic policies and by private and public predation. The intricate social cooperation that emerges when there is a sophisticated array of markets requires far better institutions and economic policies than most countries have. …
Mancur Olson, “Big Bills Left on the Sidewalk”, from A Not-So-Dismal Science: A Broader View of Economies and Societies.