64 search results for "job market"

I am teaching an undergraduate class on development microeconomics starting in a few weeks, so I have been reading and thinking about the field quite a bit in preparation for the semester.

One of the things I find striking is how economic theory has regretfully been given short shrift over the past few decades in development economics. This is likely almost entirely due to increases in computing power in the early 1990s,* which led to a much greater demand for data, which in turn fostered more systematic efforts at collecting household survey data in developing countries.**

This made the field of development economics much more empirical than it used to be, and the Credibility Revolution, combined with the rediscovery of randomized controlled trials, came as a one-two punch that pushed the field into almost exclusively empirical territory. And obviously, it didn’t help that the returns to empirical research were much larger than the returns to theoretical research, which had already declined considerably by then.

(To convince yourself of the foregoing, pick up an issue of the Journal of Development Economics from the early 1990s and compare it to one of the most recent ones; the theory-to-empirics ratio has virtually been inverted. Or just think about how the standard text for graduate development micro remains Bardhan and Udry–a book that was published in 1999!)

My office on the Saint Paul campus of the University of Minnesota, Twin Cities is in a building called Ruttan Hall. Our building, which until recently bore the awful name of Classroom Office building, was given a new name in 2010 to commemorate Vernon W. Ruttan‘s (1924-2008) contribution to agricultural and applied economics as well as to our department, of which he was head from 1965 to 1970.

I unfortunately never got a chance to meet Vern Ruttan, but I had heard of him long before I joined the department. Among other things, he became well known for his work on the induced innovation hypothesis. The induced innovation hypothesis goes something like this: When the price of a factor of production increases sharply relative to the price of other factors of production, making that factor more costly to use in production, ceteris paribus, society will innovate by developing technologies that economize on that factor of production–in other words, the change in the price of that factor has induced innovation.

A recent post over at Worthwhile Canadian Initiative on the staples trap made me dust off an idea I had a few years ago about the futility of development policy. The staple trap is such that

While exporting [natural] resources can generate great wealth, the danger of such a path is that a staples economy becomes overspecialized in raw material extraction to meet foreign needs, and runs up large external and domestic debts over-developing the resource base and associated infrastructure. These become hard to service if and when external demand collapses, setting the stage for widespread financial dislocation along with painful losses of jobs and output.

What I discuss in this post is similar to the staples trap, but it is not quite the same. The staples trap is generally the result of market forces: As demand for a staple increases, the industry surrounding that staple develops and generates side industries (e.g., processing, packaging, exporting, etc.)

What I discuss here is the result of policy making–and it illustrates the futility of development policy, by which I mostly mean “industrial policy” rather than specific development policies like building roads and bringing clean water into villages. If I can be Minnesota nice about it, this post illustrates the development policy trap.