Explaining Economic Development: Old and New Theories

After briefly illustrating some of the main traditional growth theories, this chapter will examine the new trajectories of development theories relevant to the analysis I have set forth.1 These trajectories form the basis of my development model explored in the chapters that follow. In my analysis, development is a complex process which consists of the interaction between capabilities and institutions, and goes beyond merely GDP growth. This interaction brings about human development which at a second stage brings about economic growth. Clearly, traditional growth theories such as those relating to exogenous and endogenous growth only partly explain the process of development in transition economies, and that is why a more complex analysis is required. In the thought of classical economists such as Smith, Marx and Ricardo, economic development depends mainly on the surplus quota that, as profit, flows towards capitalist entrepreneurs. Development, perceived as economic growth, would come as a consequence of the accumulation of capital. This vision of development as economic growth is also shared by neoclassical economists and Keynesians.