Development Economics and Economic Development: Why do Institution Matter?

Economic development is a complex phenomenon, at least when speaking about understanding its real sources, despite the simplifying tendencies of economic growth neoclassical theories. These orthodox theories limit themselves to identifying the necessary conditions - such as capital accumulation and technological progress - for production increasing. But, in order to explain "why" people are saving, investing, learning and looking for knowledge, we must take into consideration the institutions that define any economic system. Within society, people are perceptive to a system of general rules that provides incentives and constraints for human behavior. Institutions' and human action's mutuality, and also its economic and political implications, explain the essential importance of institutions in economic science and the institutional approach viability.