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Global Governance and Economic Development

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Results for Development Institute
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internation...
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Syracuse...

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  1. New institutional economics
  2. Case study: Eastern europe
  3. Social capital theory
  4. Case study: El Salvador
  5. New growth theory
  6. Case study: The Asian miracle
  7. Conclusion
  8. Works cited

According to common perception among economists, the idea of institutional economicsstarted with Ronald Coarse's article, ?The Nature of the Firm? (1937) where the concepts of transaction costs and economic analysis were first introduced (Coarse, 1998, p. 71). Since then, the field of New Institutional Economics (NIE) has come a long way and attracted more and more prominent economists such as Oliver Williamson, Douglas North, Harold Demsetz, and Steven Cheung as well an extensive array of representatives of various other social sciences such as law, political science, sociology and anthropology. The need for a ?new? way of thinking about economics is what Oliver Williamson expressed by coining the phrase ?new institutionaleconomics? in an attempt to distinguish the subject from ?old institutional economics?. The latter, as Coarse states was ?anti-theoretical? and without a theoretical background to explain facts, the economists belonging to the ?old? school of institutional economics were unable to bring the field to the forefront of economic analysis (1998, p. 72). Hence, important conclusions about the role of institutions, their origins, development and functioning, were slow to enter mainstreameconomics, which according to the proponents of NIE, has a general disregard for the working of real economies but rather focuses on the hypothetical situations (Coarse, 1998, p. 72).

[...] The NIE provided economists with the much needed new ways of looking at development by allowing them to combine theory with institutions, an aspect previous institutional economic approches had lacked (Nabli and Nurgent p. 1336). Thus, the major areas of potential for NIE can be defined as being able to successfully explain the importance of cultural, ethnic, family and vertically interrelated groups' activities by critically analysing the transaction costs involved in those activites and the extent to which the government plays an active role versus a mediating one. [...]


[...] In order to understand the implications of institutions for economic development and their overall role in the general scheme of things, Oliver Williamson proposes the sketching of four levels of social analysis: Embeddedness Institutional environment Governance Resource allocation and employment (L4). See table below. Table is reproduced from Williamson: The New Institutional Economics p L1 is the level at which social embeddedness occurs and social phenomena such as traditions, customs, and religion develop. According to the Handbook of Economic Sociology, the different levels of embeddedness can be divided into: cognitive, cultural, structural and political (1994, p. [...]


[...] Thus, as experts understand it, research and education go hand-in-hand with development and hence need to be highly valued and fostered in society. In short, the theory seeks to explain the transition from a resouce-based society to a more technology based one. The importance of innovation and discovery is clearly observable in Paul Romen's statement: Ultimately, all increases in standards of living can be traced to discoveries of more valuable arrangements for the things in the earth's crust and atmosphere . [...]

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