Last updated on May 18, 2014
[T]oday, “development economics” … has several key features: (1) It very consciously takes place in developing countries. These researchers are out collecting surveys or doing studies “in the field.” Perhaps the best way to define a development economist today is as someone whose presentation includes a picture of the village they worked in to collect data. (2) It is intensely concerned with identification of causal effects. Thus this field aspires to do randomized control trials (RCTs) to identify the causal effect of some X (e.g., de-worming treatments) on some Y (e.g., school attendance), as in Kremer and Miguel (2004). Failing that, some kind of natural experiment that features quasi-random treatment effects is examined. (3) It tends to be a-theoretical. The RCTs are showing reduced-form empirical effects of some kind of treatment on some kind of outcome. The de-worming paper of Kremer and Miguel is purely empirical, for example. This isn’t generally true, as there are papers that explicitly are testing some theory, but the dominant portion of the literature is purely empirical.
Through some historical inertia in the profession, we call this research “development economics.” But I think that this type of research is more properly called “poverty economics,” the study of individuals living in particularly poor, under-developed countries. … The RCTs are evaluations of interventions that aim to improve health, or nutrition, or educational attainment. By going out into these developing countries, these researchers are acutely aware of the constraints facing poor people, and are studying ways to alleviate those constraints.
This is all valuable research. It is perhaps more admirable in its motivations than other sub-fields of economics (*cough* finance *cough*). But it is not about “development.”
Economic development is about the transition of whole economies from low-productivity, poor places into high-productivity industrial economies. This transition encompasses several aspects: a move out of agriculture and into manufacturing or services, urbanization, declining fertility rates, integration with global markets. Current research in development economics – the RCTs and their like – does not study the transition. “What will make these people better off today?” is a different question than “What will make this economy develop?”
That’s Dietrich Vollrath, from the University of Houston, in a post titled “Defining Development Economics.” A few observations:
- It is true that, much like labor economists, development economists are now deeply concerned with the identification of causal effects. The reason for this is actually quite simple, and I think Michael Kremer said it best: “Development [has gone] through a lot of fads. We need to have evidence on what works.” Knowing what works is especially important in development policy, given just how little funds are allocated to international development by most governments.
- One of the fads development went through was the kind of development macro Vollrath talks about when he discusses the transition from poor, agrarian economies to rich, manufacturing or services economies. In fact, the field was born when economists like Paul Rosenstein-Rodan (1943) and Ragnar Nurkse (1953) decided to take a look at the macro problems faced by developing countries and gave birth to the “big push” theory. Development macro flourished from then until the mid- to late 1990s, with the death of the Washington Consensus. Sadly, it looks as though very little of the development policies that came from those decades amounted to much economic development.
- As above, so below: Much like a great deal of macro now focuses on the micro-foundations of the macroeconomy, development economists began focusing on the micro-foundations of underdevelopment sometime in the early to mid-1980s. A lot of that work was theoretical back then because of a paucity of good developing-country data and due to limitations of computing power. Nowadays, developing-country data is much easier to come by, and computing power is not really an issue. Thus, the relative cost of doing empirical research in development economics has decreased substantially relative to that of doing theoretical research. Moreover, there are decreasing returns to theory; that is, most (if not all) of the important market failures leading to underdevelopment have been explored by theorists, as have many of the phenomena unique to developing countries.
- Yes, much of the empirical development economics that has come out of or been influenced by the Cambridge, MA crowd has been a-theoretical. But the tide is turning, and an increasing number of development economists are now embracing structural work that combines serious theoretical modeling with better identification of causal impacts. For example, see this working paper by Banerjee et al., or this very nice paper by Dube and Vargas (2013), in which the authors investigate the mechanisms through which the causal effects they find evidence of operate.
- Economic underdevelopment is the result of multiple market failures. If we don’t understand how to overcome each of those market failures at the micro level, it is extremely unlikely that we will ever be able to end up with economy-wide growth.
(ht: Markus Eberhardt.)