Transcript How should we “do” development? From economics to policy

How should we “do” development?
From economics to policy
Why use Economics as a Lens
``Economics is the science of thinking in terms of models
joined to the art of choosing models which are relevant
to the contemporary world. It is compelled to be this,
because, unlike the typical natural science, the material
to which it is applied is, in too many respects, not
homogeneous through time. The object of a model is
to segregate the semi-permanent or relatively constant
factors from those which are transitory or fluctuating
so as to develop a logical way of thinking about the
latter, and of understanding the time sequences to
which they give rise in particular cases.
….Economics is essentially a moral science and not a
natural science. That is to say, it employs introspection
and judgments of value.”
• Keynes to Harrod, 1938
Going from development economics to
development policy
• Economic models lend to a machine analogy for
policy-making
– The economy has a few big levers and lots of
small levers (if you like)
– The models suggest which levers we should
pull to achieve (some of) our aims.
• Big question: How do we decide which levers to
pull?
Should we start by evaluating the levers?
• Often easier to get evidence on a small scale (e.g.
RCTs), and these can potentially be replicated in
various environments
• On large scale, we often need to rely on cross
country regressions.
– But often the mechanism may be transparent
from theory and/or theory can help us break up a
big question into smaller parts.
• Yet…
Benefits (and limits) of using evaluations
to go from theory to policy
• Clear benefits when policies can be easily (and
scientifically) evaluated
• But…
– How do we prioritize action between where
we have good evidence that our model is
correct v/s where we don't or can't have
evidence (but our model might still be correct Keynes on recessions)?
• Does this depend on who 'we' are?
Two visions (or lever rules) for “doing”
development
• One innovation at a time
– Micro, social policy: Emphasis on education,
health, microcredit, service delivery to the
poor
– Case in point: Progresa-Opportunidades
• Economy-wide policy reforms
– Macro, economic growth
– Emphasis on trade, fiscal, financial, industrial,
regulatory, governance policies
– Case in point: China since 1978
On the face of it, the big lever seems to be
clear winner
Source: http://siteresources.worldbank.org/INTPOVCALNET/Resources/Global_Poverty_Update_2012_02-29-12.pdf
Not so fast:
• The policies that produced the Chinese miracle are
– Not entirely clear
 Was it liberalization, or the limits thereof?
– Not readily transferable to other settings
• Literature on growth policies vacillates between
– specific recommendations that find limited support
in cross-country data
“set low and uniform tariffs,” “remove interest-rate
ceilings on banks,” “improve your doing business rank”
– broad recommendations that lack operational
content
“integrate into world economy,” “achieve
macroeconomic stability,” “improve contract
enforcement” …
And growth has not always produced
increase in human development
These are partial correlations, controlling for level of GDP per capita. Source: HDR 2010.
Yet, a focus on small levers can also fall
short
• Treating symptoms of poverty is not the same as
treating causes
– “humanitarian assistance” versus “development
policy”
• Poverty may be best addressed not by helping the
poor be better at what they are already doing, but
getting them to do something altogether different
– Productive diversification, urbanization,
industrialization
Yet, a focus on small levers can also fall
short
• Underlying causes of poverty may lie at some
distance from the poor
– poor infrastructure, bad regulation, overvalued
currency…
• Limits to learning from individual projects
– scaling up
– external validity
A possible convergence
• There is actually a certain convergence between
micro and macro approaches (big and small
levers) in using data to go from theory to policy
– not on what works, but about how one thinks about
and does development policy
• Abstracting from differences in
– level of analysis (micro versus macro), and
– empirical methods (RCTs versus cross-country
regressions)
• Recent work in the two styles of work do share
common predilections on policy
– Both favor diagnostic, pragmatic, experimental, and
context-specific strategies
To summarize: How we “do”
development depends on:
1. What we are trying to achieve
2. What our “model” of development is
3. Where we think we have good evidence