Economic policy for development and the new institutional economics

Motivation: Economists have increasingly emphasized the importance of institutions as a fundamental factor for economic development. However, too frequently institutional approach used in economics is simplified, both from the starting point in defining an institution and during the analysis itself. Aim: The aim of this article is to summarise the current state of knowledge on the use of the institutional perspective in the research on the economic development of developing countries. Materials and methods: The analysis is conducted from the perspective of the new institutional economics. The article uses the qualitative analysis method that includes a literature review and descriptive analysis. Results: The first part briefly describes the contribution of the new institutional economics to the research on the economic development. The second part demonstrates how the institutional perspective is used in the mainstream economics, while the third, how it is used in the development economics. Although the contribution of the new institutional economics to the development theory is significant, in practice, it is very difficult to provide clear guidelines for development policy. This is the reason why there is a huge difference between researching economic development in the spirit of the new institutional economics and how institutions are implemented in the mainstream and development economics.