Institutionalization and Development: Challenges of New Institutional Economics in Theoretical and Policy Areas on Development (Critical Evaluation)

This paper critically examines the new institutionalism approach to defining and evaluating formal and informal institutions as well as providing policy prescriptions for developing countries with regard to two key challenges. The first challenge is the lack of theoretical consensus on the definition of institutions and, consequently, their extension from formal and ethical rules to executive mechanisms and political and economic institutions. The second challenge is the constraint on the measurement of informal institutions stemming from the characteristics of informal social levels in which institutions appear unplanned. For this reason new institutionalism scholars have largely avoided careful study of informal norms. Conceptual scattering, also, has made it almost impossible to provide a comprehensive definition of the entity. Thus the lack of adequate focus on informal institutions has led to the neglect of this theory of gradual institutional change. In addition, due to the social overlap, many institutions are strongly correlated, making it difficult to discover a causal relationship between institutions and economic development. Theses conceptual and theoretical challenges hinder the development of a comprehensive policy agenda for developing countries. For this reason, some institutionalists emphasize the importance of adaptive institutions rather than adoptive ones