Understanding long run economic development as an evolutionary process

A broad sketch of an evolutionary theory of long run economic development is presented in this article, considering the basic processes and structures involved. The problematic orientation of Neoclassical growth theory is discussed, pointing out its limited macroeconomic perspective, the weak consideration of technological change and of demand, the lack of attention to institutional settings. An explanation of economic development has to consider the key role of innovation and the process of creative destruction, in the context of Schumpeterian insights and evolutionary perspectives. I argue that economists need to consider three somewhat separate bodies of research on economic development. One is the evolutionary analysis that follows Schumpeter. A second is the research on technological advance as an evolutionary process. The third is focused on institutions and how they mold the development process, and how they themselves evolve. Moreover, the role of demand in shaping growth dynamics and business cycles—stressed by Keynes and post-Keynesian approaches—has to be integrated in such evolutionary perspectives in ways that are only now starting to emerge. Copyright Springer International Publishing Switzerland 2015