It's time for a third phase of development thinking focused on structural change, driven by changes in endowment structure and comparative advantages. The market will be the fundamental institution for resource allocation and the state would play a proactive facilitating role in the process. I make this case because, in two earlier waves of development economics had mixed records. The first emerged after World War II with a focus on market failures and an embrace of traditional structuralist, state-led development policies; the second adopted a largely neo-liberal view that targeted government failures and recommended Washington Consensus-types of policies.
I lay out this argument in the most recent issue of the World Bank Research Observer (subscription required), which synthesizes half a century of various approaches proposed by development economics, and suggested a way forward. My WBRO paper, New Structural Economics: A Framework for Rethinking Development, is critically discussed in the same issue of the journal by Joe Stiglitz, Anne Krueger, and Dani Rodrik