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The Role of Institutions in Economic Development

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Type: Working Paper
Author: North, Douglass C.
Date: 2003
Agency: United Nations Economic Commission for Europe, Geneva, Switzerland
Series: UNECE Discussion Papers Series, no. 2003.2
URI: https://hdl.handle.net/10535/3778
Sector: Theory
Subject(s): economic development
Abstract: "I am going to talk to you about institutions and economic development and I am going to be concerned with two issues. One of them is what makes dysfunctional economies or economies that do not work well and the second is what can we do about it. Now that is a neat job to do in an hour. So I will be giving you a very quick and superficial covering of many and very complex subjects. "I begin with the theory we use to understand the problems. Neoclassical economics was never intended to deal with the issues of economic development. It evolved in the late nineteenth century and its objective was to explain efficient resource allocation in developed economies. It had two gigantic failures as far as our subject matter here is concerned. One, it was frictionless; two, it was timeless, static rather than dynamic in terms of its issues. I am going to talk first about how to deal with frictions; next I shall explore the behavioral assumption that underlies neoclassical theory. Then we can turn to the role of time and then be ready to lay out the problems of development and, in the time remaining, see what we can do about them."

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