Download - „The New Development Economics: We Shall Experiment, But How Shall We Learn?“ D.Rodrik (2008)
„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
Introduction Divergence of research strategies
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? 2
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Easterly - „The White Men‘s Burden“ (2006)
Planners vs. Searchers
Advocates searchers approach – sequential appraoch to reform
Similar of Rodrik‘s line of argumentation – identify binding
constraints to growth
Sachs – „The End of Poverty“ and United Nations Millennium Project
Substantial increase in foreign aid – „big push“ to escape the poverty trap
Doing everything at once
e.g. Millenium Villages
Far away from any consensus
???
GOOD NEWS AND BAD NEWS FOR DEVELOPMENT ECONOMICS
Macro dev. economists
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Micro dev. economists
• substantial convergence in policy mindsets of micro-evaluation enthusiasts and growth diagnostics
• methodological divergence
GIVE BEDNETS OUT FOR FREE?
Research strategies
Cross-Section econometrics – macro- specfication
Survey – qualitative research
Experimental Approach – randomized evaluation
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GIVE BEDNETS OUT FOR FREE?
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?
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
Experimental Approach – randomized evaluation
Thought excursion
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THOUGHT EXCURSION: EXPERIMENTAL APPROACH IN DEVELOPMENT ECONOMICS
o MIT Poverty Action Lab (A. Banerjee & E. Duflo)o „hard evidence“ vs. „soft evidence“
o Randomized experiment or natural experimento Ask counterfactual question: How would an
individual have performed in the absence of the program?o Treatment and control group chosen randomly
o 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
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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THOUGHT EXCURSION: EXPERIMENTAL APPROACH IN DEVELOPMENT ECONOMICS
Esther Duflo on Ted Talks about Social Experiments to fight Poverty
http://www.ted.com/talks/lang/eng/esther_duflo_social_experiments_to_fight_poverty.html
For overview about the methodology and some examples of implementation see also: „Use of Randomization in the Evaluation of
Development Effectiveness“ - Duflo & Kremer (2003)
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GIVE BEDNETS OUT FOR FREE?
o Experimental Approach – randomized evaluation
Pros: identification Cons: moral concerns, problem of „external
validity“
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INTERNAL VS. EXTERNAL VALIDITY
Internal validity: quality of causal identification Has the study revealed the link between
policy/treatment and the outcome of interest?
External validity: generalizibilty
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Sound inference requires both !!
MACRO DE AND CHANGING POLICY MINDSETS
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 macro-development economic theorists believed they knew exactly how to turn around economic performance in closed statist economies
Today: less confidence & a call for humility
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YESTERDAY & TODAY2
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Traditional Policy Frame (presumptive)
New Policy Mindset
(Experimentalist)
Presumptive (not Diagnostic)
Characterised by list of reforms
(when these fail add more)
Emphasises complementarity of reforms over sequencing/prioritisation
Bias: favouring universal remedies
Diagnostic (agnostic basis)
Emphasises experimentation to discover what works
Tends to look for selective, relatively narrow targeted reforms
Suspicion: ‘best practice’ or universal approaches
THE GOOD NEWS
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.
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
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WHAT DOES IT MEAN TO BE A MDE AND EXPERIMENTALIST AT ONCE?
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
China’s experience with experimental gradualism
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CHINA: EXPERIMENTATION UNDER HEIRARCHY
Crossing the river by feeling the stones
Core: public action should be basedupon evaluations of experiences withdifferent policies (Experimental).
Ravallion (2008)
Chinese example as the crowning achievement of
the method of experimentation and evaluation
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CHINA: EXPERIMENTATION UNDER HEIRARCHY
Mindset of China’s reform process is perfectly illustrative of the potential for convergence of the ideas of micro & macro development economists.
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”
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CHINA: A REAL WORLD EXAMPLE What constitutes scientific?
“Three Parts Natural, Seven Parts Man-Made: Bayesian analysis of china’s great leap forward demographic disaster”
(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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WHAT DO WE NEED? CHANGES ON BOTH SIDES !
Macro dev. economists
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Micro dev. economists
• recognize that randomized evaluation is restricted by narrow and limited scope • focus more on the external validity of their studies
• recognize distinctive advantages of experimental approach
Not let methodological differences overshadow what micro- and macro- economists have in common !!
CONCLUSION
CONCLUSION
Rather than proving the superiority of one research strategy over the other: How can different approaches complement each
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