What Drives Development Success? New Institutional Economics vs. New Structural Economics

This paper compares New Institutional Economics (NIE) and New Structural Economics (NSE) to explore the fundamental driver of long-term national economic growth. NIE posits that the distinction between inclusive and extractive institutions, rooted in the colonial histories of North America and Latin America, fundamentally shapes cross-country economic growth trajectories. Nevertheless, this theoretical proposition is challenged by empirical evidence. First, despite stark divergences in their colonial institutional legacies, Latin America and North America achieved similar per capita GDP growth rates over the 1870–1960 period. Second, the thirteen economies that have maintained long-term high growth after World War II feature highly heterogeneous political regimes and property rights systems. In contrast, NSE argues that a country’s growth performance is decisively determined by whether its development strategy aligns with its comparative advantages. This paper concludes that sustained long-term economic growth relies on targeted and dynamic state intervention that adapts continuously to evolving factor endowments during the process of industrial and structural upgrading.