In 1961 Rosenstein-Rodan did something that no social scientist usually has the nerve to do (in this paper); based on his theory (and the available data he had on “economic fundamentals”), he made forecasts of how rapidly different parts of the world were going to grow over the next 15 years.
As you can see from the table, he got it almost completely wrong. …In fact, many of the economies about which Rosenstein-Rodan was bullish are not much richer today than they were in 1961.
The main reason why Rosenstein-Rodan got it so wrong is because he completely ignored the role of institutions and politics.
Now the thing is that, though most economists today would espouse more sophisticated theories than those of Rosenstein-Rodan, much of development economics — especially when it comes to the practice of development — still ignores institutions and politics.
Full post here.
If it’s war, quite obviously I fall on their side.
But I suppose I am not sure who we would fight against. I would have guessed most development economists agree that political stability and “good institutions” matter a great deal, and they quibble mainly over primacy, or perhaps which institutions.
I do think that development economics has had a blind spot for civil conflict. But even that has changed a great deal in the past few years.
Mostly, I think, theirs would be a war on neglect: the failure to study and understand institutions, rather than a rejection of their importance. That is probably the greatest gap in the field, one that the experiments revolution helps fill a little, but far from completely.
The fact that we still say things like “institutions matter” and don’t really have much hard proof for what specific institutions and why is a symptom of the problem.
I suppose the institutional perspective would instead ask why development economists aren’t pursuing the question with more vigor. I suspect it has something to do with a poor fit with the kind of empirical methods economists are allowed to employ and still maintain intellectual respectability.
12 Responses
It is clear to me that development research is greatly hampered by the relative inattention to institutions. I think you have captured part of what constrains this work when you mention the methodology economists are “allowed to employ” while maintaining good reputations. But weak training in most econ PhD programs on both the theoretical frameworks and esp methodology for analyzing institutional issues certainly plays a big role also. I sense that things might have improved somewhat since I did my PhD, but they could only do so because in the mid-90s most of what econ students were taught was neo-classical and “institution free”. Thankfully, with North, Coase, Ostrom and Williamson receiving Econ Nobels since then…things have improved. A bit.
It is revealing to examine one area where economists have contributed to high quality research on institutions that has shed real light on important questions; that is, Elinor and Vincent Ostrom’s (and others in the Bloomington school) work in the area of the emergence of local institutions to deal with the issues that emerge in using common pool resources. If you take a look you will see that have brought to bear a wide range of methodology and theory to answering the questions they wanted to answer. And their research teams were almost always cross disciplinary. Elinor Ostrom and colleagues have taken the trouble to examine why and how they were able to do this, and why this kind of work so rarely happens elsewhere in their 2010 book Poteete, A. R., M. Janssen, et al. (2010). Working together : collective action, the commons, and multiple methods in practice. Princeton, N.J., Princeton University Press. They discuss these issues in the first chapter which is available online http://press.princeton.edu/chapters/s9209.pdf. In addition to the wonderful book Christopher Moore recommends, I commend it to all your readers interested in making more/ better research happen on institutional issues in development.
I wonder how long you can have your work consistently published in AER, QJE and Econometrica, along with many other papers on the institutional roots of poverty and still claim to be an “outsider” in development economics, raging against the anti-institutionalist machine. It’s been 10+ years now on this research agenda for Acemoglu and Robinson and while I respect them a great deal and like their work, it’s hard to take seriously their claims that they are in the wilderness or whatever it is they are claiming.
I’m not convinced that development economists don’t look at institutions. Or at least they look at institutions in a different, more micro-theoretic way. I remember being taught about the importance of looking at institutions in grad school back in the early 90s, with the Pranab Bardhan edited “The Economic Theory of Agrarian Institutions” on the reading list for the Development Economics sequence I took. Also, as I’m sure you’re aware, Rohini Pande and Chris Udry’s Econometric Society World Congress 2005 paper “Institutions and Development: A View from Below” is worth reading. There has, of course, been quite a bit of micro based development work broadly within the New Institutional Approach framework both before and since then.
To anyone interested in moving beyond institutions matter, make sure to acquaint yourself with Avner Greif´s “Institutions and the Path to the Modern Economy”
His focus is on the transactions and is making clever use of game theory.
Chapter one is available online “here”
I read A-R’s post as being just as much an indictment of development practitioners than development economists, but anyway, I sympathize with them both.
Development practitioners avoid politics and institutions for pretty obvious reasons, don’t they? I mean, unless you’re the Millennium Challenge Corporation, don’t you almost *have* to work with a country’s politics and institutions? Isn’t that almost implicit in the idea of “country ownership”? Well, you don’t *have* to ignore politics/institutions, but it’s much easier than trying to fix them. It’s much harder to market good governance or local-capacity-building or democracy-promotion to donors than it is to market health outcomes or schools built, for example (though this too is changing). Plus you’re a foreigner, with a limited understanding of how policies and institutions matter for development in the first place (hence A-R’s criticisms of development economics).
As for development economists, your (Chris’) comments are right on the money–who exactly is A-R arguing with? Surely most, if not *all* economists believe that politics and institutions matter quite a lot. Development economists are lagging in that regard, maybe, but as you said they’re starting to catch up — Paul Collier, Bill Easterly, and yourself come to mind. I’d add that development economists differ from other economists because “development” is by definition very broad. That doesn’t excuse them from studying politics and institutions, of course, but it does mean that their brains (and their models) are sort of scattered and over-stretched, unlike, say, Austrian economists, labor economists, industrial economists, or macroeconomists (who have all sorts of issues of their own, by the way).
Anyway, I’d like to see an answer to Craig Hadley’s comment above.
A more helpful discussion for those of Prof. Blattman’s readers who disagree with ascribing ANY significant role to political institutions in development may be “well, why don’t you believe institutions matter for development, then?” We’re all here to learn, after all, and I’m confident we can agree to disagree without worrying about negativity. Quite ironically, that’s one of the benefits of inclusive political institutions, but I digress. In case it isn’t obvious, I’m certainly none of the AJR authors. However, I thought I’d offer some thoughts to Anonymous:
*******
It also seems remiss to mention the comment to AJR (2001) without pointing out it’s response, friend. The concerns have already been addressed by AJR (2012):
http://economics.mit.edu/files/7679
Good day all!
**********
Like I said, we’re all here to learn, so let’s not be too hard on Anonymous simply because s/he got distracted for a bit. These things can and do happen to the best of us, you know. Keep up the good work, Prof. Blattman.
I dislike deleting comments on principle unless they are ad hominem and unsupported attacks. The above comment crosses that line, especially because the cited paper argues flaws but far from accuses (or evidences) foul play. I’m quite certain that if any of my own papers were subjected to the same scrutiny that flaws of similar magnitudes would be uncovered. The main reason I leave the comment, aside from an aversion to censorship, is because I prefer to call out and quarrel with bad arguments rather than let them lie.
It seems remiss to mention the alleged success of Acemoglu and Robinson’s Institutional Origins Hypothesis and not also point out that it is wrong, and that the paper they used to prove it was so deeply flawed as to be evidently intentionally rigged: http://www-personal.umich.edu/~albouy/AJRreinvestigation/AJRrev.pdf
Indeed, the paper’s problems are so severe that it is taught as an example of what not to do in undergraduate econometrics courses.
Of course, I’m unwilling to go against the World’s #1 Economist openly, but I will anonymously reverse their main claim from above: The main reason why Acemoglu-Johnson-Robinson got it so wrong is because they willfully manipulated the data to support their preconceived notions about the world.
I think it also has to do with clients/customers. Economics is a big business not just because the academic research is so great, but because governments (and businesses) want to hear what economists (or those they have trained) can tell them about how to achieve their goals. The “benign technocrat” assumption works well there even if politicians in practice know that they need to be attentive to other considerations as well if they wish to stay in power. Advice that they need to go against major elements of their supporting coalitions (which institutional reform inevitably involves) is not what they want to pay for. They may not even want to let that kind of political economist into the country to do research.
I’d been keen on hearing your take on how to measure institutions or, if you can, pointers to people who have done this particularly well. Thanks. Great blog
I studied and worked in politics for a few years before turning to economic studies and the two disciplines have always had a productive but troubled relationship in my brain. That was until I recently read Elinor Ostrom’s excellent Understanding Institutional Diversity which gives a simple, intuitive, and empirically supported framework for working between the two. Highly recommended.
I’d place a greater emphasis on the final word in that passage: politics. It’s not so much institutions that are anathema to economists as politics. Most of development economics, even that which attempts to deal with institutions in a sophisticated way, basically waves away politics. Until development economists give up the presumption (or more accurately the ideology) of benign technocracy they will have little of value to contribute to the actual process of development.