What binds most of the disparate writings by institutional economists (broadly defined), from the earlier progenitors, such as Veblen, Keynes and Galbraith, to the modern institutionalists, including Means, Fusfield and Hodgson, is their questioning of many of the tenets of neoclassical theory. Within this same broad paradigm, there has also been an emergence of ‘new institutional economics’, whose chief protagonists are Oliver Williamson and Douglas C. North. However, for the latter, the relationship between institutions and markets across time and space starts from the basic propositions of rational individualism and competition pertaining to neoclassical economics, with the inclusion of more institutional detail than is usual for neoclassical models.
This paper seeks to explore as yet an uncharted area, that is, that development economics, from the writings of Arthur Lewis to those of Amartya Sen, has long been the bastion of institutional economics. Despite the concerted attacks by neoclassicists on the discipline in the early 1980s, development economics has never been persuaded by the strength of argument of the mainstream neoclassical case. Arguably, the common ground of development economics as an identifiable branch of the discipline has been its concern with the impact of institutional factors (cultural values in civil society, politico-bureaucratic states, global economic organisations) on resource allocation. Concepts such as dependency, unequal exchange, entitlements the neo-colonial state, urban bias, the East Asian miracle and transnational corporations have strong institutional roots. This paper will examine the shifting views on institutional factors in development economics and attempt to integrate the New Institutional Economics into a more general theory.
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