Economic development as an evolutionary process

In this essay I argue that modern evolutionary economic theory provides a much more adequate framework for understanding the economic development process than the neoclassical theory that for many years has dominated mainline economic thinking. I begin my argument by laying out the basic differences between the two theoretical points of view. I then go on to propose that an adequate theory needs to recognize the rich mix of institutions that are involved in economic activity – not just firms, households, and markets – and also that the varied roles of government cannot be understood simply as responses to ‘market failures’. While the early articulations of evolutionary economic theory did not encompass the institutional variety and complexity of modern economies, institutions play a central role in more recent writings. I then will develop the argument that economic development involves the co-evolution of the technologies known and in use, and the institutions supporting and regulating these. This is exactly the perspective provided by modern evolutionary economic theory.