Economic Historicism, applying history to micro and macro-level economic analyses

Abstract

Development economics operates within a paradigm which emphasises the importance of formal institutions. This paper shows both quantitatively and qualitatively that incorporating informal institutions within the existing paradigm enhances our understanding of the economic results yielded by improving the formal institutional landscape within developing countries. The analysis is conducted on two analytical levels. At a micro-level, using data from the Centre for the Promotion of Imports from Developing Countries, this paper explains gender bias in PSD-programme participation by looking at historically developed traditions, values and behaviour (informal institutions). At a macro-level, using freely available data from the World Bank, ILO, UNSTAT and IFC, this paper explains the gap between improving formal institutions (based on the World Bank's "doing business index") and economic outcomes (expor turnover) by incroporating governance data (indicators for informal institutions, mainly "trust") into the anayses.

Both on the micro-level and on the macro-level this paper shows that applying history to economic analyses, results of economic policy can be better understood than by only looking at policies and economic outcomes, without recognising the importance of cultural and social characteristics within a country (informal institutions).