Day: August 8, 2022

Is There Such a Thing as Development Economics?

Alex Tabbarok says no:

I used to think there was such a thing as development economics. There are still richer and poorer countries, of course, but is there a “development economics,” a special type of economics for poor countries? I don’t think so. Maybe there once was. In the twentieth century, divergence in per-capita GDP increased big time and it was a burning question why poor countries weren’t on the same development path as the developed nations. Starting around 1990-2000, however, we have seen convergence. Most countries are now on the same path. Poorer countries and richer countries are becoming more alike, sometimes for good and sometimes for bad.

https://marginalrevolution.com/marginalrevolution/2022/08/there-is-no-such-thing-as-development-economics.html

Here’s the Wikipedia article on what constitutes development economics:

Development economics is a branch of economics which deals with economic aspects of the development process in low- and middle- income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but also on improving the potential for the mass of the population, for example, through health, education and workplace conditions, whether through public or private channels.

https://en.wikipedia.org/wiki/Development_economics

Both Alex’s definition and the Wikipedia definition focus on how low- and middle- income countries need a different kind of economic theory when it comes to growth in these parts of the world. But why do these countries need a special kind of economics?

I suspect an answer most economists would agree on (talk about courting controversy!) is that these countries are likely to have a poorer quality of institutions and property rights. The legal system may not work as well as intended and the quality of political institutions might be worse along at least some dimensions, and that’s just for starters. So it’s not so much the case that a special kind of growth theory is needed, but that some of the assumptions underpinning the model are fundamentally different.

But as Alex mentions in his post, these assumptions may not be applicable, because convergence has taken place. The post is difficult to extract from, and I would recommend that you go ahead and read it in its entirety. But perhaps the most surprising thing in Alex’s latest post is the fact that this convergence has happened because poorer countries have caught up, more or less – but also because richer countries have become worse along some dimensions:

More generally, poorer and richer countries face many of the same problems today: infrastructure, low-skill workers and technological change, climate adaption and so forth. Is the latest paper on cash transfers, pollution, or corruption about a poor country or a rich country? It’s hard to tell. Poor countries still have their own unique problems, of course, but those problems are best analyzed by country rather than by income category. India is not the same as Thailand or Peru. I see little that unites poor countries under the rubric development economics.

https://marginalrevolution.com/marginalrevolution/2022/08/there-is-no-such-thing-as-development-economics.html

And anecdotally, I’m sure we’ve all experienced ways in which poorer countries are not just better off than before, but also have materially better institutions and processes.

The question is, does that then mean that there is no longer such a thing as development economics?

I would disagree with Alex’s stance, and say that development economics very much remains a relevant subject, and that for two reasons.

First, because with convergence, we’re not answering the same question that we were earlier – it is not so much about the fact that we need to focus on how to have poor countries grow faster, but just about how to make the world grow faster. There still remain, to be clear, countries that remain poor, and even within countries that have developed faster, there are regions that remain poor – but the focus of development economics should be different today than it was, say, in the 1960’s.

But that brings me to my second point. I define development economics slightly differently. When I take classes on development economics, I say that this is a subject that tries to find out the answer to three questions:

  1. What does the world look like?
  2. Why does the world look the way it does?
  3. What can we do to make the world a better place?

And viewed from this framework, it is the answer to the first question that has changed from about sixty years ago. Figuring out why it has changed is now a fascinating part of development studies. And the lessons one can learn by thinking about this helps us try and figure out what we can do to make the world a better place. To give you just one of many possible examples, you might want to think about which factors helped South Korea grow so rapidly in the last six to seven decades, and then ask which of these factors are replicable in an Indian context today. Not all factors will be applicable, and India today is not what India was back then, nor is it today what South Korea was back then.

Also, Pakistan cannot learn the same lessons that India might, because the ground reality in both countries is different in terms of resources, climate, geography, population, income levels, political institutions and so much more. And Sri Lanka will have a different set of lessons that are applicable, and all the African nations is a whole other story… and well, so on. Alex mentions this in his blogpost, of course.

But while it is true that there is little that unites poor countries today under the rubric of development economics, I don’t take that to mean that there is no such thing as development economics. Rather, I would argue that this simply means that the low hanging fruit in development economics have been picked, and development economics has now become an even more challenging and interesting field than before.

But “what can we do to make the world a better place?” will forever remain a valid and urgent question, so development economics, for me, will remain a fascinating subject to think about.