Historical Institutionalism

The institutional approach offers a comprehensive analytical tool to overview institutional influence to variations in regional economic performance. The literature shows that neoclassical quantitative research is inadequate to explained economic development as it lacks to analyze institutions as the rule of economic agent behaviour and failure to recognize the role of historical embeddedness (North, 1994). The neoclassical economy focus on operation of the market and treat it as a single and independent subject leads to its lack of understanding on how and what really driven the economic development.

Specifically, this research applies historical institutionalism approach, refers to the study of how social and political institution structure interactions influence distinctive national trajectories (Hall and Taylor, 1996). The distinctive trajectories lies in the political theories, which institutions of polity and economic structure conflicts that causes unevenness, and in the structuralism that saw polities and economic as the principal factor of collective action and generating different outcomes. This study employs historical institutionalism to overview ways of variation in preexisting institutions, at local and national levels, that determine the degree of local capacity to establish institutions and policies necessary in economic development. This research studies the two characters of historical institutional approach, which are the critical juncture and feedback effects (Ikenberry, 1994), in understanding the persistent of Indonesian regional economic divergence.

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