Development Economics: Growth Theory, Poverty Traps, and Institutional Foundations of Prosperity

Abstract

This article systematically reviews the major theories and policy debates in development economics concerning economic growth, poverty reduction, and institutional foundations. It first introduces the Solow–Swan model and endogenous growth theory, explaining the roles of capital accumulation, technological progress, human capital, and knowledge spillovers in long-term growth. It then examines how inclusive and extractive institutions shape national development through property rights protection, the rule of law, and constraints on political power. In addressing poverty, the article draws on Sen’s capability approach to emphasize that development should be understood not only as income growth, but also as the expansion of substantive freedoms, including political freedoms, social opportunities, economic facilities, transparency guarantees, and protective security. It further compares competing perspectives on aid effectiveness, including aid dependency, poverty-trap theory, and randomized controlled trials, arguing that specific development interventions should be evaluated through rigorous empirical evidence. Overall, development economics has evolved from broad macroeconomic theories toward more precise assessments of institutional mechanisms and policy programs, while China’s development experience raises important questions for existing theories of institutions, governance, and policy sequencing.