EC101: Links for 31st October, 2019

  1. “To make this easier to navigate, I’ve grouped the publications by one measure of influence, academic citations per year since publication. The categories are not indications of the quality of the research, just its academic influence to date. Within categories, I’ve ordered studies chronologically.”
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    A useful set of links: 100 of Michael Kremer’s most popular papers.
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  2. “Moreover, the key target of economic policy, Gross Domestic Product (GDP), doesn’t provide much help. So with a view to ‘remastering’ macroeconomics, in a new ING report, produced with the help of John Calverley, Carlo Cocuzzo and I investigate how GDP could be remixed. We pay particular attention to the impact of the rapid digitalisation of the economy that has been gathering momentum over the past 25 years. Pursuing the music analogy, our focus is on a digital remix of GDP.”
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    I’m not a big fan of the concept of GDP in the first place, but that being said, this article helps us understand how the digital economy might perhaps be underrated in national income.
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  3. “Nigeria, like other countries in sub-Saharan Africa, is facing a demographic boom. By 2050, its working-age population will have increased 125 percent. At current GDP growth rates, the local labor market will be unable to absorb all the new entrants. One way for Nigeria to reduce this pressure, and make the most of remittance and skills transfers, is to promote new legal labor migration pathways with countries of destination across the globe.”
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    A useful overview of the Nigerian labor market and how it might be made more effective Applies in part to India as well, I’d argue.
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  4. “Trouble is, the rescue is entirely fictional. The only reason it’s even being attempted is to delay — as long as possible — the collapse of this large shadow lender. Such an event, as S&P Global said in a rare show of plainspeak by a credit appraiser, could be powerful enough to deliver a “solvency shock” to India’s troubled banks. Neither the lenders, nor the Indian government, wants to contemplate this grim prospect. Hence, the make-believe restructuring.”
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    Andy Mukherjee explains the mess that is Dewan Housing. Not only is this not going to end well, I’d argue that there are a lot many more skeletons about to tumble out of the closet.
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  5. “The march of technology means oil’s days are numbered. And for the good of the planet, that transition has to happen as fast as possible. But it doesn’t mean the people who gave their lives to getting energy out of the ground should have to suffer.”
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    Noah Smith on the second order effects of the slowdown in demand for oil.

The Nobel Prize in Economics, 2019

Abhijit Banerjee, Esther Duflo and Michael Kremer have won the Nobel Prize in Economics for the year 2019.

Does Giving Aid Work?

When I teach classes in development economics, I often speak about the Easterly-Sachs spectrum*. Without getting into long, boring details, here is the point: William Easterly is of the opinion that giving aid does more harm than good. At the other end of the spectrum is Team Sachs: no way are countries ever going to develop without aid.

Now you, I and everybody else we know may have an opinion about this spectrum, and we could spend the rest of our lives arguing about our opinions. But if the issue is ever to have a chance of being settled, we need evidence, one way or the other.

Where to get that evidence from? How?

This year’s Nobel Prize has been awarded to the three people listed above for their attempt(s) at answering these questions.

The issue is impossibly difficult to deal with. Say you give aid to a country, and say the country does well next year. How much of the improvement was because of your aid? How much of the improvement would have taken place any way? Might it be the case that the improvement would have been (horror!) even more had you not given the aid? What if you gave aid to improve, say, primary healthcare for youngsters, and educational outcomes improved. Did kids learn better because of the aid given for healthcare? And on and on, making the issue all but impossible to resolve.

Nobel Prizes ought to be given for making all but impossible to resolve issues tractable, and from that viewpoint, this is an excellent choice.

The way the Nobel Prize winners sought to resolve this issue was by setting up experiments. Or, to use the jargon du jour, by setting up Randomized Control Trials. Or Impact Evaluations, if you will.

What are RCT’s?

Malaria is a frustrating disease to think about, because one the simplest ways to deal with it is to prevent it. And prevention is, for the most part, simply caused most effectively by using mosquito nets. And so an NGO called TAMTAM started distributing mosquito nets in Kenya.

Would people buy the nets if they weren’t subsidized? What if they were partially subsidized? What if they were free? This example is drawn from Poor Economics, but the idea is very simple (to describe, at any rate!): find out what works by experimenting.

Whichever method works best, well, deploy it.

Banerjee, Duflo and Kremer have all run a series of experiments on a variety of issues to figure out precisely this: which method is working best? Set up, as carefully as possible, an experiment to find out what works, and to what extent. Read Alex Tabarrok’s post over on Marginal Revolution to get a sense of some of the experiments that have been carried out.

There have been experiments carried out on gender, on mosquito nets, on savings behavior: the works. If you are curious about what kind of experiments have been carried out, this is a useful website.

So, awesome! Right? Well…

A long(ish) video, but here’s one of the dissenting voices.

 

But still…

All of the above being said, RCT’s have been fairly interesting in terms of helping us understand how a specific part of the world works for a specific period of time.

More than that is difficult to say, but that doesn’t mean at least that much shouldn’t be said!

Additional Links

  1. A book about randomized control trials.
  2. The latest book by Duflo and Banerjee (not out yet!)
  3. The Twitter thread announcing the news, from the official Nobel Prize Twitter handle.
  4. Via Niranjan Rajadhakshya’s Twitter feed, an old profile he had done of Banerjee and Duflo.
  5. Here is an old talk given by Michael Kremer on RCT’s.

Thursday’s links, needless to say, will be other posts written about this years prize winners.

The Bottom Line

Work done by Banerjee, Duflo and Kremer has helped us uncover some surprising truths, changed our guesses about what would happen to y if x was done, and we have come along much more in terms of the science of setting up credible, well designed, carefully constructed experiments. Whether or not you agree with their current popularity, they have aided our understanding of the world we live in, and that ought to be celebrated.

Congratulations!

 

 

 

 

 

 

*Duflo and Banerjee speak about this at the very start of their excellent book, Poor Economics, which is where I got the idea from, of course.