Abstract
In what direction does development economics head? How are the conclusions from the historical review of development economics shaping current development thinking? Are development economists on the point of devising the methods and techniques to uncover and explain the specific constraints and opportunities that characterise economic activity in low-income countries? This chapter attempts to give some tentative answers to these questions by discussing several recent contributions and trends in the development literature that are emerging out of their authors’ interpretation of the widely varying results of hitherto practiced methods and approaches to development theory and policy. Many of these contributions can in fact be viewed as first signs for the advent of a fourth generation of development economists.
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Notes
- 1.
1 Of the almost 10,000 people that the World Bank employs, nearly 100 are development economists who work full-time with the Bank’s Development Economics Vice Presidency. Apart from them, many more do research at the Bank’s thematic networks and regional units, at its Independent Evaluation Group, and at the World Bank Institute.
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2 At the time the report was produced, Gobind Nankani, a Ghanaian native, was Vice President and Head of the World Bank’s Poverty Reduction and Economic Management Network. He oversaw the report which was written by a team led by Roberto Zagha. Members of that team were J. Edgardo Campos, James Hanson, Ann Harrison, Philip Keefer, Ioannis Kessides, Sarwar Lateef, Peter Montiel, Lant Pritchett, S. Ramachandran, Luis Serven, Oleksiy Shvets and Helena Tang.
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3 For a review of both the World Bank report and the IMF paper see Rodrik (2006).
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4 Not only are Washington-based institutions everything but in consensus about prospective approaches to development policy, the World Bank study obviously didn’t met everyone’s approval even within the Bank: In November 2006, Gobind Nankani resigned after 30 years in service at the World Bank, becoming the “latest casualty in President Paul Wolfowitz’s management shake-up” (Reuters 2006).
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5 These economies that grew at an average annual rate of 7% or more for 25 years or longer in the post-war period are Botswana, Brazil, China, Hong Kong (China), Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan (China) and Thailand.
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6 Rodrik contributed to both the work of the Growth Commission, as well as to the preparation of the World Bank’s Economic Growth in the 1990s review. Moreover, he is teaching in an executive programme that the Center for International Development at Harvard University runs for economists at the World Bank.
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7 This growth diagnostics approach is discussed in more detail in Sect. 10.4.
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8 See also Sect. 9.3.
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9 Even though both accountability and feedback are highly desirable, the challenge lies in eliciting information from the poor about their real preferences in light of the fact that they often lack possibilities to convert their needs into a market demand.
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10 Other recent voices of disenchantment with the results of international development assistance include Calderisi (2006), and Moyo (2009). Both are focussing on aid to Africa. Like Easterly, Calderisi, a former World Bank Country Director for Central Africa, sees no benefit in calls for increasing the amount of aid to Africa. In light of his view that Africa’s problems were too often self-imposed by incompetent and corrupt heads of state, he even recommends cutting foreign aid to African governments in favour of direct support to promising private initiatives, multi-country projects, and political backing of the few governments that are credibly committed to fighting poverty. Zambian-born economist Moyo offers an African perspective on the problem of aid that leads her to very similar conclusions, though. Specifically, she provokes by maintaining that aid is no longer part of the potential solution to African ills, but has become part of the problem itself. For further critical reading on international aid see Hancock (1998).
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11 On the economic rationale behind group lending as practiced by the Grameen Bank see Sect. 4.2.2.
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12 The Millennium Project was commissioned by the United Nations Secretary-General in 2002 as an independent advisory body to recommend a concrete action plan for the world to achieve the Millennium Development Goals. As of 2007, the Millennium Project secretariat has been integrated into the United Nations Development Program (UNDP).
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14 See also Sachs et al. (2004), and Sachs (2005) for similar proposals.
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15See Sect. 6.2 on these contributions.
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16See especially Sect. 8.1 on contributions that model the consequences of imperfect information, and Sect. 8.2.1 on those that integrate positive transaction costs in development theory.
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17See also Furubotn’s (2001) critical assessment of institutional extensions to the theory of the firm. He maintains that the procedure of constructing models with ill-matched assumptions drawn from the disparate neoclassical and neoinstitutional universes precludes economists from maintaining a consistent analytical viewpoint.
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18Initial attempts at integrating insights from behavioural and experimental research into modern development economics include, for instance, Kanbur (2003); Mullainathan (2007); and Cardenas and Carpenter (2008). See also Sect. 10.4 on applications of new experimental methods for empirical research in development economics and impact evaluations of development policies.
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19For an attempt to master this challenge see Part III, especially Sect. 13.1.4.
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20Apart from the finding of apparently irrational behaviour from field experiments, the assumption of economic rationality is also called into question by behavioural evidence from recent laboratory experiments, especially where complex decision situations are concerned (see, for instance, Fehr and Rockenbach 2003).
- 21.
21Mookherjee (2005, p. 4331) says about these new econometric contributions that “[r]esearch papers tend to get evaluated almost exclusively in terms of their success in combating the econometric problems, often to the exclusion of the importance of the context or issues addressed by the analysis, the imaginativeness of the underlying hypotheses formulated or tested, or the importance of the findings from a wider standpoint.”
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22On the question whether analytic narratives are indeed a method or rather an approach, see Bates et al. (2000). As they are presented here, analytic narratives clearly describe a method for empirical research.
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23Country case studies have also been a main analytical tool of the first generation of development economists. But they used them rather as result of a lack of reliable statistical data from developing countries, and were often too quick in generalising observations from one country to the whole group of developing economies.
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24A compilation of recent contributions that each applies the analytic narratives approach to answer a specific growth puzzle in a developing country is provided by Rodrik (2003). Among others, the studies in the volume try to unravel the driving forces behind the exceptional growth experiences of China, India, Botswana and Mauritius, as well as the patterns that can help to better understand earlier growth accelerations in Brazil, Mexico, Venezuela and Indonesia. Of interest to development economists is as well the analytic narratives project (Bates et al. 1998), which synthesises the approach in a number of essays that combine historical and comparative research with rational choice models in order to explain the formation and change of specific institutions in particular times and places. Also multilateral development banks are discovering analytic narratives as a method to complement statistical estimates and indicators with a more profound understanding of their underlying causes and deeper determinants (see, for instance, Anderson 2009).
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25See Sect. 10.1.
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26Hausmann and Rodrik (2005) apply the growth diagnostics approach to El Salvador to identify its greatest obstacles to growth and to explain why the country did not perform well despite adopting almost every possible reform from the Washington Consensus policy list after its civil war in the 1980s. The South African National Treasury recently appointed an international advisory panel to perform growth diagnostic assessment of the South African economy and to help it identify the binding constraints to shared growth (Hausmann 2008).
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27The following discussion on randomised experiments in development research draws on Duflo and Kremer (2005).
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28The alternative strategy to observe the same group before and after their exposure to the programme (which is usually done by performing a baseline and a follow-up survey of the beneficiaries) would in most cases yield biased and hence unreliable estimates about the impact of the programme, because the results will also capture the effect of any other changes in the environment of the observed group that occurred in the interim.
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29For more examples of pioneering research on development and poverty based on randomised trials see the work done in and around the Abdul Latif Jameel Poverty Action Lab (J-PAL), which was founded in 2003 by Abhijit Banerjee, Esther Duflo and Sendhil Mullainathan at the Massachusetts Institute of Technology (http://www.povertyactionlab.org). A good review of the recent literature on randomised trials, and a discussion of the strengths and limitations of the experimental approach to development economics, is provided by Banerjee and Duflo (2008).
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30For a detailed discussion of this problem, see Sect. 7.2.
- 31.
31As Rodrik (2008) notes, the best known example for the successful application policy experimentation as a strategy for discovery of what works is China’s experience with experimental gradualism. Among the policy experiments that underpin China’s economic success are, for instance, the household responsibility system, dual-track pricing, township and village enterprises, and special economic zones. For a detailed discussion of China’s experience at economic reform, see Heilmann (2008) and Qian (2003).
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Altmann, M.P. (2011). Emerging New Directions in Development Economics. In: Contextual Development Economics. The European Heritage in Economics and the Social Sciences, vol 8. Springer, New York, NY. https://doi.org/10.1007/978-1-4419-7231-6_10
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