Development as leapfrogging, not convergence, not catch-up: towards schumpeterian theories of finance and development

Our aim is to demark a pathway towards Schumpeterian theories of finance and development. To do this, we offer four basic propositions for discussion. First, we suggest that ‘convergence’ and ‘catch-up’ are, from a Schumpeterian perspective, theoretically inadequate concepts as they frame development narratives similarly to the Rostovian idea of a linear path towards some sort of ‘equilibrium imposed on history’. Leapfrogging by means of innovation and finance is put forward as a better approach to analyzing development trajectories. Second, we contend that rather than the often-assumed convergence among nations, history shows that ‘divergence’ is a more common result of development trajectories; this is especially visible in the last half a century. Third, we outline the key features of this Schumpeterian framework, centered on the concept of leapfrogging through innovation and finance. We conclude by highlighting the essential roles of finance and financial governance within this alternative framework for understanding successful development trajectories, and posit that this construct may be labeled a Schumpeterian entrepreneurial state.