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Introduction to Modern Economic Growth The discussion in this chapter therefore justifies why a study of political economy has to be part of any investigation of economic growth Much of the study of economic growth has to be about the structure of models, so that we understand the mechanics of economic growth and the proximate causes of income differences But part of this broad study must also confront the fundamental causes of economic growth, which relate to policies, institutions and other factors that lead to different investment, accumulation and innovation decisions 4.8 Taking Stock This chapter has emphasized the differences between the proximate causes of economic growth, related to physical capital accumulation, human capital and technology, and the fundamental causes, which influence the incentives to invest in these factors of production We have argued that many of the questions motivating our study of economic growth must lead us to an investigation of the fundamental causes But an understanding of fundamental causes is most useful when we can link them to the parameters of fully-worked-out model of economic growth to see how they affect the mechanics of growth and what types of predictions they generate When we turn to the institutions hypothesis, which we have argued in this chapter that the available evidence favors, the role of theory becomes even more important As already pointed out above, the institutions view makes sense only when there are groups in society that favor institutions that not necessarily enhance the growth potential of the economy They will so because they will not directly or indirectly benefit from the process of economic growth Thus it is important to develop a good understanding of the distributional implications of economic growth (for example, how it affects relative prices and relative incomes, and how it may destroy their ends of incumbents) This theoretical understanding of the indications of the growth process than needs to be combined with political economy models of collective decision-making, to investigate under what circumstances groups opposed to economic growth can be powerful enough to maintain known-growthenhancing institutions in place In this chapter, our objective has been more limited (since many of the more interesting growth models will be developed later in the book) and we have focused 207