Structural analysis and the reintegration of poor urban neighborhoods into local and mainstream economies

Abstract

Since Adam Smith's An Inquiry into The Nature and Causes of the Wealth of Nations, economists have been attempting to explain cross-country differences in the rates and levels of economic growth. By focusing on these measures, economists have faced the difficult problem of aggregating heterogeneous economic activities and resources. Orthodox economists have attempted to solve this problem with a methodological individualist approach pining neo-classical microfoundations to macroeconomic growth and development theory. One popular example is the Solow growth model and its adaptations. By proceeding with these types of models, variables such as human capital, physical capital, and labor lose explanatory power through the inadequate proxies and restrictive assumptions that are necessary for the aggregation of these models to be mathematically viable. Despite the obvious flaws created by this process of extreme simplification, these models have led to a strong belief in macroeconomic policies such as privatization, liberalization of trade, and deregulation. The impact of these policies has been felt throughout the world and have helped make a minority of the world's population extraordinary wealthy while exacerbating income and social inequalities and facilitating environmental destruction.