Page 89 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.72, # 2, 2015, pp. 87- 97

Some other factors also accelerated the application of new strategies on
development. First, the success in East Asia showed the importance of government
intervention for effective economic performance (Öniş and Şensus, 2003: 16).
Second, institutions historically played an important role in western countries for
regulating human interaction (Bardhan, 1989: 1389). Third, the rise of the NIE
provided theoretical foundations about institutional arrangements to achieve
effective markets and economies which influenced new development policies. The
theoretical contributions of the NIE are essential, as Carroll (2010: 18) argues that
the PWC is based on a group of new ideas theoretically supported with the NIE.
The new development paradigm was referred to as the PWC by Chief
Economist of the World Bank Stiglitz during his lecture in Finland on 7 January
1998 (Stiglitz, 1998: 7). He highlighted the shortages of the Washington Consensus
and stressed “the role of state” to establish an effective market economy (Stiglitz,
1998: 7). The basic tenets of the PWC also include “ownership, partnership and
participation” (Stiglitz, 1998: 20-23). Stiglitz gave his other lecture in Geneva on 19
October, 1998 and stressed the importance of “going beyond the Washington
Consensus” (Stiglitz, 1998: 1-2).
As mentioned earlier, one of the factors which provided theoretical
contributions to the PWC was the NIE, and I will account for the rise of the NIE to
assess its contributions to the PWC. The NIE became a crucial field in development
issues starting from the early 1990s. The rise of the NIE has been associated with the
works of Douglass C. North (Brown, 2005: 99). However, the origins of the NIE
dates back to the popular work of Ronald Coase which are “The Nature of the Firm”
(1937) (Kherallah and Kirsten, 2001: 1).
North (1995: 17) identifies “the NIE as an attempt to incorporate a theory of
institutions into economics”. The definition of North clarifies that institutions as
well as institutional management are essential elements in economic performance
and development. Williamson discusses the fundamental tenets of the NIE in his
paper discussing Matthews‟s the presidential address to the Royal Economic Society
in 1986, quoting a 1986 book by Matthews: “Institutions do matter and second the
determinants of institutions are susceptible to analysis by the tools of economic
theory” (2000: 595 quoting by Matthews, 1986).
Harriss discusses the benefits of the rise of the NIE and summarizes three
reasons why the rise of the NIE is crucial for development of economic thinking.
One reason is that although the origins of the NIE have derived from the roots of the

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