Towards a Holistic Approach to Economic Development: Incorporating Institutional and Schumpeterian Economics into Development Dynamics
Purpose: This article tries to locate the deeper roots for high development performance of an economy to take place, focusing on its most decisive factors, being the institutional structures that provide the incentives for human choices and behaviors, i.e., trust, cooperation, security, participation, risk and entrepreneurship. Design/Methodology/Approach: Using the theoretical lens of institutional economics, expressing their key concepts as measurable variables and considering the framework of modern growth strategies, it became feasible to form a simulation model of the development process, used as the conceptual model that formed the framework for measurable variables to be utilized under the methodological approach of SEM, providing a path diagram of 13 factors, with data from 61 countries for the time period from 2017 until 2019. Findings: Results suggested that the necessary conditions for production chains to be interconnected and pioneering development to take place are open market structures and efficient institutions of entrepreneurship, provided also that institutions of political isonomy and conditions of creative destruction penetrate throughout the development process. Practical implication: Modeling economy as a complex dynamic system of changing structures and behaviors, one can incorporate the view from a policy maker who is in charge of stimulating the innovative capacity of human capital, aiming at changing behaviors through experimentation with institutional interconnections, being committed to citizen inclusiveness into the decision making processes. Originality/value: This article offers an alternative view of the production cycle, not of an industrial product, but of GDP, utilising the analogy of the production space of a firm, and extending it to the evolutionary dynamics of an economy, theorised as a networked system of institutional structures that provide the productivity apparatus for the envisioning of the new cultural and technological trends.