1 ECONOMIC DEVELOPMENT AND THE INSTITUTION OF BORROWING AND LENDING Erik Stubkjær, Department of Development and Planning, Aalborg University, Denmark ABSTRACT Why are some countries economically much more successful than others? More effective production techniques, formal schooling, and the availability and adoption of news are among key factors, as evidences by empirical investigations. Moreover, recent research investigates institutions in the sense of institutional economics, for example in terms of level of democracy, of corruption, and of protection of property rights. An explanatory model is difficult to develop for a number of reasons. For example, presently the assessment of ‘level’ or ‘quality’ of an institution is based on expert opinions rather than based on analyses of the factors which provide the effect of the specific institution. Also, heterodox economists inform us that at economic growth depends on the ability of the society to adapt to market opportunities and threats, implying that least some institutions have to be moulded. The paper addresses this situation by suggesting a categorisation of institutions where one of the categories regards the ability of a society to react in a profitable way to changes in the environment. Moreover, the institution of property rights is analysed in some detail in order to identify the factors which make the institution work, as a basis for a more valid assessment of the quality of the institution in a specific society or jurisdiction. This latter part of the paper is motivated by a recent shift in development efforts. For decades, developing countries have been supported by the World Bank Group and national aid agencies, among others. Interestingly, in recent years an alternative to this development incentive evolved. This is due to the fact that investors in emerging markets have looked for government bonds, the security of which depends on the country’s ability to collect taxes, as well as covered bonds, the security of which is perhaps better backed by a pool of assets, in casu units of real property. The paper aims