Abstract:The article tries to advance our understanding of institutional economics by critically examining the currently dominant discourse on institutions and economic development. First, I argue that the discourse suffers from a number of theoretical problems -its neglect of the causality running from development to institutions, its inability to see the impossibility of a free market, and its belief that the freest market and the strongest protection of private property rights are best for economic development. Second, I point out that the supposed evidence showing the superiority of 'liberalized' institutions relies too much on cross-section econometric studies, which suffer from defective concepts, flawed measurements and heterogeneous samples. Finally, I argue that the currently dominant discourse on institutions and development has a poor understanding of changes in institutions themselves, which often makes it take unduly optimistic or pessimistic positions about the feasibility of institutional reform.

This is the first in an occasional series of DPR Debates, designed to illuminate specific issues of international development policy. Each debate will bring together two well‐known researchers or practitioners, giving them the opportunity, over three rounds, to test and challenge each other's ideas. The debates are intended to be robust but accessible, rooted in rigorous research but useful to the wide readership of Development Policy Review.

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