The new political economy and policy reform

Abstract Economists involved in offering policy advice to developing countries have often expressed frustration at the extent to which political factors within developing countries have thwarted the implementation of effective economic reform. While the focus of economic policy in the first few decades after World War II was on overcoming market failures, since the 1970s the focus has been on overcoming government failures. This paper examines how politics interacts with economic policy, in particular to consider if the new political economy can help us to achieve the political reform that seems essential if economic reform programmes are to be effective. The conclusion is that economic advice, and advisers, must understand the political environment within which policies will be implemented.