Application of New Institutional Economics to the Problems of Development: A Survey

With neoclassical economics increasingly being questioned on its ability to provide answers to the many economic problems and issues in lowas well as high-income countries, the New Institutional Economics (NIE) provides an exciting and challenging new paradigm. Institutions do structure economic forces and play an important role in expanding human choice — a fundamental goal of economic development. This paper presents a survey of the application of the NIE to the problems of development. The majority of the quantitative and qualitative studies pertaining to the role of institutions in the development process found a strong positive correlation between the quality and performance of institutions on the one hand and development outcomes on the other. The survey shows that the three major themes of NIE, i.e., the transaction costs, property rights and collective action, can effectively address issues that have remained more or less puzzles when analysed using conventional approaches.