This guide can be read online using the links to its sections above. The full guide can also be downloaded as a PDF (20 pages; 290 KB).
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Political economy analysis aims to situate development interventions within an understanding of the prevailing political and economic processes in society – specifically, the incentives, relationships, distribution and contestation of power between different groups and individuals – all of which greatly impact on development outcomes. Such an analysis can support more effective and politically feasible donor strategies, as well as more realistic expectations of what can be achieved, over what timescales, and the risks involved.
Because pro-poor development is intrinsically linked to good politics, the essential starting point for effective development interventions must be an understanding of a country’s political economy. Political economy analysis can focus attention on informal institutions, and cultural and social practices, which often explain why formal institutions do not work as intended. Such analysis generally cautions against relying on technical fixes, and assuming that formal institutions can be made to work through the transfer of ‘international best practice’. It can help identify where change is most likely to occur and which types of reform will have the greatest pro-poor impact given prevailing interests.
Political economy analysis complements conventional governance assessments by providing a deeper level of understanding about power, state capability, accountability and responsiveness. It has also proven very useful to understand processes of state-building and state collapse in fragile or conflict-affected states.
Political economy analysis has enjoyed a recent resurgence in development thinking. However, its ultimate influence will depend on the extent to which it results in changes in development practice. Critics charge that political economy analysis has not yet maximised its full potential in this regard, due to weak institutional incentives to take on board the findings from commissioned work. Whilst this will remain a key challenge, the emergence of a new generation of operationally relevant tools at the sector and programme level offers good possibilities for transcending the gap between analysis and action, thereby ensuring meaningful change in donor practice.
This topic guide provides pointers to some of the key literature on donor approaches to political economy analysis and its effectiveness in different contexts. It includes examples of analyses and tools applied at country, sector and programme level. It was originally prepared by Claire Mcloughlin (GSDRC) in May 2009, with assistance from Gareth Williams (The Policy Practice). The GSDRC also appreciates the contributions of Stefan Kossoff (DFID). Comments, questions or documents for consideration should be sent to Claire Mcloughlin.
The following document summaries were added in March 2012: