Institutional Economics

Week one Paper Review

X74/3646/2018 Gichuru Tabitha Njambi

X74/3639/2018 King'ori Madelaine Muthoni

X74/3622/2018 Ohoko Vincent Simon

X74/0355/2018 - Chepngeno Maureen

X74/3753/2018 Odhiambo Jeff Oloo

Total score is 4.6/5 marks here

My score is 3.8/4 marks here

Schneider and Nega (2016) analyze the limitations of New Institutional Economics (NIE) in the context
of Sub-Saharan Africa. The authors identify four key issues - property rights, culture analysis, inequality
and poverty and the role of the state - which make NIE very unsuccessful in Sub-Saharan Africa. They
start by pointing out that NIE seems to be the new consensus as a way forward when it comes to
development. However, when it comes to Sub-Saharan Africa, they note that property rights are a big
hindrance, given that property rights are considered illegitimate. Furthermore, existing traditions make it
difficult for the government to allocate property rights to communal land, elites manipulate the
establishment of property rights and reallocation might bring instability and conflict within the current
political structures. In addition, the authors note that culture is valid and helps shape economic behavior
and institutions. They give an example of how kinship networks and customary law influence economic
activity, like in Ghana, where it is common for employees to be from the same ethnic groups. The authors
also criticize International Financial Institutes (IFIs) and Poverty Reduction Strategy Papers (PRSPs) for
only focusing on narrow neoliberal aspects of NIE and paying little attention to policies that would reduce
poverty and inequality in Sub-Saharan Africa. Finally, they point out that IFIs trying to reduce the role of
the state is detrimental to development, and instead, they should try to help the region improve state
institutions.

Economic Institutions are critical in determining a country's prosperity, while politics determines the
economic institutions a country has (Acemoglu& Robinson, 2012). This paper compounds this by
insisting that state-led development is key to aiding developing countries in their journey to
industrialization. It criticizes the insistence of diminishing state participation in the efforts towards
development by IFIs giving priority to privatization warranted by corrupt institutions in Sub-Saharan
Africa, which is problematic. While most economists have pushed NIE as an integral part of
development, it cannot be applied holistically in Sub-Saharan Africa without considering factors unique
to the region such as culture, which might interfere with development. This paper can be commended for
its ability to highlight some of the key issues that affect Sub-Saharan African development which are
mostly not taken into account when policies are made but instead forced to implement policies from
developed countries that do not fit into the social, political and economic construction in Africa
aggravating the existing sorry conditions (Cherneva, 2020). An example is the market for land in which
Africa cannot function effectively in the current institutional environment given the cultural factors in
Sub- Saharan Africa that counters the argument "that stability of land tenure will lead to greater
productivity."

This paper can be a reference point for several issues that hinder NIE's application in Sub-Saharan Africa.
There is a need for NIE to stop focusing on narrow neo-liberal aspects for successful implementation in
Sub-Saharan Africa. African Economists should be included in the identification of problems and
research in African development to ensure that African economies are studied in a more holistic
approach, including the social, political and cultural aspects. This would guarantee more development
rather than a frictionless neo-classical framework. Moreover, NIE in sub-Saharan Africa should
incorporate culture in its implementation and channel Sub-Saharan cultural behavior into production
systems and maximize low-cost programs that reduce imminent poverty and inequality. The role of the
state should not be demeaned since state is intertwined with economic institutions as they enforce law and
order, private property and contracts (Acemoglu& Robinson, 2012).
References My score is 0.8/1 marks here

Acemoglu, Daron and James A. Robinson. Why Nations Fail The Origins of Power, Prosperity, and
Poverty. New York, NY: Crown Business, 2012.

Cherneva, R. (2020). Neocolonialism: How Western Corporations are Exploiting Africa, the ongoing
Cycle of Poverty in Africa and the Failure of Development. Retrieved at
https://medium.com/illumination/neocolonialism-how-western-corporations-are-exploiting-
africa-d0e197af1950
Geoffrey Schneider & Berhanu Nega (2016) Limits of the New Institutional Economics Approach to
African Development. Journal of Economic Issues, 50:2, 435-443, DOI:
10.1080/00213624.2016.1176504