Transcript The New Development Economics: We Shal Experiment, But How

„THE NEW DEVELOPMENT
ECONOMICS: WE SHALL EXPERIMENT,
BUT HOW SHALL WE LEARN?“
D.RODRIK (2008)
Presented by Chantelle Blachut & Elisabeth
Niendorf –Development Workshop – 2nd year
MADE – Faculty of Economics – University of
Warsaw
OUTLINE
22.07.2015
Introduction
 Divergence of research strategies

presented by C. Blachut & E.Niendorf
Cross-Section Analysis
 Survey Analysis
 Randomized Experiments

Convergence of Policy Mindsets
 Conclusion
 Discussion
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WHICH DEBATES DO WE FACE TODAY IN DE?
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Substantial increase in
foreign aid – „big push“
to escape the poverty
trap
Doing everything at
once
e.g. Millenium Villages
Easterly - „The White
Men‘s Burden“ (2006)
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Planners vs. Searchers
Advocates searchers
approach – sequential
appraoch to reform
Similar of Rodrik‘s line
of argumentation –
identify binding
constraints to growth
Far away from
any consensus
???
presented by C. Blachut & E.Niendorf
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22.07.2015
Sachs – „The End of
Poverty“ and United
Nations Millennium
Project
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GOOD NEWS AND BAD NEWS FOR DEVELOPMENT
ECONOMICS
Macro dev. economists
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22.07.2015
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Micro dev. economists
presented by C. Blachut & E.Niendorf
• substantial convergence in policy
mindsets of micro-evaluation
enthusiasts and growth diagnostics
• methodological
divergence
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GIVE BEDNETS OUT FOR FREE?
22.07.2015
Research strategies
Cross-Section econometrics – macro- specfication

Survey – qualitative research

Experimental Approach – randomized evaluation
presented by C. Blachut & E.Niendorf
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GIVE BEDNETS OUT FOR FREE?
22.07.2015
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
presented by C. Blachut & E.Niendorf
Research strategies
 Cross-Section econometrics – macro- specfication
(1) Yit = α Pit + ∑j βj PitXit + ∑j γj Xit + Di + Dt + εit
Pros: broad coverage, control for at least some of the
background conditions
Cons: identification
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GIVE BEDNETS OUT FOR FREE?
22.07.2015
presented by C. Blachut & E.Niendorf
Research strategies cont‘d
 Survey – qualitative research
Pros: can be carried out in a more open-ended
manner, allowing unanticipated information to play a
role
 Cons: relevance

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Experimental Approach – randomized evaluation
 Thought excursion
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THOUGHT EXCURSION: EXPERIMENTAL
APPROACH IN DEVELOPMENT ECONOMICS
MIT Poverty Action Lab (A. Banerjee & E. Duflo)
o
o
Randomized experiment or natural experiment
Ask counterfactual question: How would an
individual have performed in the absence of the
program?
o
o
„hard evidence“ vs. „soft evidence“
presented by C. Blachut & E.Niendorf
o
22.07.2015
o
Treatment and control group chosen randomly
Strong candidates for the application of this
methodology:
o
sanitation, local government reform, education and
health  programs directed at individuals or local
communities
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THOUGHT EXCURSION: EXPERIMENTAL
APPROACH IN DEVELOPMENT ECONOMICS
22.07.2015
Randomization:
gives good estimates for the effects of the policy
BUT does not provide a way to analyse how the background
conditions have affected the outcome
BUT makes extrapolation of the results is infeasible
 Superiority in terms of identification
BUT depends on: What evidence is needed for? How wil it be
used?
BUT we need a hypothesis about the cause- effect
relationship in advance
 Guidance for policy makers
BUT specificity of locality, group, conditions
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presented by C. Blachut & E.Niendorf
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THOUGHT EXCURSION: EXPERIMENTAL
APPROACH IN DEVELOPMENT ECONOMICS
For overview about the methodology and some
examples of implementation see also:
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„Use of Randomization in the Evaluation of
Development Effectiveness“ - Duflo & Kremer (2003)
presented by C. Blachut & E.Niendorf
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22.07.2015
Esther Duflo on Ted Talks about Social
Experiments to fight Poverty
 http://www.ted.com/talks/lang/eng/esther_duflo_s
ocial_experiments_to_fight_poverty.html
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GIVE BEDNETS OUT FOR FREE?
22.07.2015
Experimental Approach – randomized evaluation
Pros: identification
 Cons: moral concerns, problem of „external validity“
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presented by C. Blachut & E.Niendorf
o
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INTERNAL VS. EXTERNAL VALIDITY
Internal validity: quality of causal identification
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External validity: generalizibilty
Sound inference requires both !!
presented by C. Blachut & E.Niendorf
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Has the study revealed the link between
policy/treatment and the outcome of interest?
22.07.2015
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MACRO DE AND
CHANGING POLICY MINDSETS
Today:
less confidence & a call for humility
presented by C. Blauchut & E.Niendorf
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22.07.2015
Experimental approach spurs innovation by
“making it easy to see what works” (Banerjee)
 Premise: policy innovation is useful in that it
promotes the development of unconventional
solutions
 Until recently this idea ran counter to growth
theory & up until one decade ago macrodevelopment economic theorists believed they
knew exactly how to turn around economic
performance in closed statist economies
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YESTERDAY & TODAY
New Policy Mindset
(Experimentalist)
Diagnostic (agnostic basis)
Characterised by list of reforms
(when these fail add more)
Emphasises experimentation to
discover what works
Emphasises complementarity of Tends to look for selective,
relatively narrow targeted
reforms over
reforms
sequencing/prioritisation
Bias: favouring universal
remedies
Suspicion: ‘best practice’ or
universal approaches
presented by C. Blauchut & E.Niendorf
Presumptive (not Diagnostic)
22.07.2015
Traditional Policy Frame
(presumptive)
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THE GOOD NEWS
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Commonalities:
Diagnostic / Scientific Methodology
Begin with no presumptions
Postulate hypothesis re underlying process
Use continuous monitoring & evaluation to check
if evidence is consistent with the signals you
would expect to find under the given hypothesis
presented by C. Blauchut & E.Niendorf
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Although new in the context of growth these
recent developments this pattern of reasoning is
very similar to that of micro-development
economists focusing on randomised experiments.
22.07.2015
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WHAT DOES IT MEAN TO BE A MDE
AND EXPERIMENTALIST AT ONCE?
presented by C. Blauchut & E.Niendorf
China’s experience
with experimental gradualism
22.07.2015
No contradiction (need to interpret
experimentalist broadly not only equate with
randomised evaluations)
 Experimentalism (macro) = simply a
predisposition to find out what works through
policy innovation
 Some of the most significant gains in economic
history can in fact be attributed to this approach
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CHINA: EXPERIMENTATION UNDER
HEIRARCHY
Ravallion (2008)
Chinese example as the crowning achievement of
the method of experimentation and evaluation
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presented by C. Blachut & E.Niendorf
Core: public action should be based
upon evaluations of experiences with
different policies (Experimental).
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22.07.2015
Crossing the river by feeling the stones
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CHINA: EXPERIMENTATION UNDER
HEIRARCHY
Illustrates … “a vastly significant real-world
instance (that shows) how the experimental
approach need not remain limited in scope and
can be extended into the domain of national
policies”
presented by C. Blauchut & E.Niendorf
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Mindset of China’s reform process is perfectly
illustrative of the potential for convergence of the
ideas of micro & macro development economists.
22.07.2015
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CHINA: A REAL WORLD EXAMPLE
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What constitutes scientific?
(By Houser, Sands & Xiao)
GLF (1958-61)
 Goal: Achieving Economic Growth
 Famine 1959-61 (est. 14.8m casualties)
 Approx. 71% due to effects stemming from bad
policies
need for caution - DE is not a game
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presented by C. Blauchut & E.Niendorf
“Three Parts Natural, Seven Parts Man-Made:
Bayesian analysis of china’s great leap forward
demographic disaster”
22.07.2015
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CONCLUSION
WHAT DO WE NEED?
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Macro dev. economists
Micro dev. economists
• recognize that randomized
evaluation is restricted by
narrow and limited scope
• focus more on the external
validity of their studies
Not let methodological differences overshadow what
micro- and macro- economists have in common !!
presented by C. Blachut & E.Niendorf
• recognize distinctive
advantages of experimental
approach
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22.07.2015
 CHANGES ON BOTH SIDES !
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CONCLUSION
Rather than proving the superiority of one
research strategy over the other:
A significant opportunity that could allow for
the re-unification of micro and macro economic
development theory
and
the progression from universal (presumptive)
approaches to contextual (experimental) based
is presenting itself....
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 NEW DEVELOPMENT ECONOMICS
presented by C. Blachut & E.Niendorf
 How can different approaches complement each
other?
22/07/2015
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