Theories of Economic Development vs. Theories of Economic Growth: an Institutionalist's Perspective

Theories of economic development, as well as theories of economic growth, analyses the dynamics of the most important macroeconomic indicators caused by the process of capital accumulation. The main difference between them lies in the approaches to understanding the institutionalization of the processes of capital accumulation and investment. The orthodox theories of economic growth developed within the Smithian and neoclassical tradition are based on the postulate of market equilibrium. This postulate implies that market institutions provide the basis for economic growth, while other economic and social institutions serve as complements, supporting or complicating their action. Therefore, the influence of various institutions is taken into account in a simplified form by adding ‘institutional indices’ to production functions or econometric models. Heterodox theories of economic development, which were formed in line with the criticism of Smithian and neoclassical orthodoxies of economic thought, pay attention to the institutional complexity of the economy and more fully explore the role of diverse institutions in macroeconomic dynamics. The article considers the genesis of the main ideas that formed the modern direction of Development Economics. These include the views of mercantilists Antonio Serra, James Stewart and Alexander Hamilton, Friedrich List's concept of the national system of political economy, Karl Marx's theory of the reproduction of social capital and Joseph Schumpeter's theory of innovation. The theories of economic development, based on these ideas, develop an alternative understanding of institutions which are not an ‘institutional environment’ for the market, but a structure that generate and guide the course of economic reproduction to ensure the functioning of a non-equilibrium economy in a complex external environment, and the most important social mechanism embedded in the social structure ensuring economic development in accordance with the conditions of national economies. The article substantiates the relevance of theories of economic development in comparison with theories of economic growth under present conditions.