Rent Seeking and New Institutional Economics, Article Review Example

Globalization has changed the world in many ways. For economists who are trying to understand new institutional economics, emphasis is on coming up with theories that explain the impact of globalization on the domestic economy and political stability. Weede (1996) explores two common theories: the relative deprivation theory and dependency theory.

According to dependency theorists, high trade and investment levels are likely to bring about economic inequality. On the other hand, relative deprivation theorists suggest that the extent of deprivation or prosperity from dependence in international trade depends on the nature of international trade interactions. Countries that deal in manufacturing industries are seen to afford mass welfare services while those that sell agricultural produce cannot afford to cater for these services for their populations. However, these arguments have been proposed at the hypothetic level only.

According to Krueger (1990), development economists insist that governments must play an active role in matters of economic development. Advocates and bureaucrats with selfish interests are the greatest obstacle to economic development. This leads to market failure that can only be remedied through an overhaul of government policies and systems.

Institutional persistence has been defined and explained by Acmoglu and Robinson (2008). They set out to prove that economic institutions can persist even when political institutions have changed. Examples are offered from the Latin American and US history. This compares favorably with Chang’s (2006) paper that tries to make it clear that economic institutions, though faced with problems the world over, are very important in achieving development goals. However, in Chang’s case, examples of institutional persistence are derived from orthodox literature.