The core principle of development economics posits that national prosperity is determined by a causal hierarchy linking productive factors (physical capital, human capital, and technological knowledge) to formal institutions that provide secure incentives for investment. Specifically, growth mechanisms rely on the existence of enforceable property rights, political stability, impartial legal systems, and open markets which mitigate externalities like civil war or corruption. This framework categorizes immediate causes of divergence as variations in factor accumulation while attributing ultimate causes to underlying institutional quality shaped by historical path dependence, cultural norms, and geographical constraints.
The core principle of development economics posits that national prosperity is determined by a causal hierarchy linking productive factors (physical capital, human capital, and technological knowledg…