Economic development from the perspective of evolutionary economic theory

Sanjaya Lall saw economic development as an evolutionary process, with technological learning at its heart. This essay lays out the key differences between an evolutionary theory of economic activity and change, and the neoclassical theory as articulated in economic text books. It argues that only an evolutionary theory fits what is known about how technological learning progresses. It also argues for recognition, right at the basis of economic theorizing, that modern economic systems contain a rich mix of institutions, and not simply the firms, households, and markets, that are in neoclassical theory, and that the roles of government cannot be adequately understoodas simply responses to “market failures”. It develops a view that long run economic change must be understood as involving the co-evolution of technologies in use and the institutional structures supporting and regulating these.