Theory and Practice in Development Economics

Abstract

After World War II, a new disciplinary field called “development economics” emerged, as economists began to shape specific theories in order to address the practical problems they were facing in less developed countries. Theory arose out of practice, in the sense that the shaping of development economics theories involved learning in the field and developing new analyses and concepts out of this experience, not just taking ideas from other fields and applying them in a different context.

During the 1950s the discipline prospered but, by the 1960s, it faced a crisis, for it came to be recognized that the experience of developing countries did not fit the models of development that had been constructed, and many of the main policy prescriptions had clearly failed. The result was a complete reorientation of the discipline, in which “neoclassical economics”, hitherto believed irrelevant to developing countries, became central. The field started to apply, systematically, tools such as cost-benefit analysis and input-output analysis; it also became much more formalized than it was before. The result of this transformation was a much more conventional application of theory to the problem of development.

This paper discusses the oscillating nature of development economics. The tension between theory and practice has never gone away.

Keywords: Development economics, History of development, World Bank, Hollis Chenery, Applied economics