Limits of the New Institutional Economics Approach to African Development

In the last two decades, there has been a marked shift in the research on sub-Saharan Africa (SSA) from standard neoclassical analysis to new institutional economics (NIE). The increasing emphasis on NIE is reflected in a wide range of work by international financial institutions and scholars. However, the NIE approach retains fundamental limitations due to its narrow interpretation of institutions, its over-reliance on analysis of transactions costs and property rights, and its ahistorical attachment to markets and private sector firms as major engines of development. Furthermore, NIE typically fails to look “inside institutions” to identify the complex cultural factors that shape the interests and behaviors of the members of institutions. This paper engages in a critique of NIE analysis of SSA economic development, and suggests the need for a nuanced analysis of property rights and culture, along with development programs to address inequality and poverty and to foster state-led development.