I believe that without economic theory we cannot make sense of the causes of poverty and low income in much of the world or make progress in designing policies that could contribute to individuals, regions and nations unleashing their economic potential. Unfortunately, this view does not easily translate into a “recipe” for doing academic research and policy work that combines economic theory with data and econometrics.

There are two main reasons for this. First, economic theory often fails to provide as clear a guidance to empirical work as we may wish; this is both because of the complexity of the problems we are dealing with in the context of development economics, and also because we, as theorists, do not always do a good job of distinguishing which elements of theories and models should be taken empirically seriously, tested and used as part of policy analysis.

Second, many economic insights that are important and relevant for development problems come from “general equilibrium” and “political economy”… Unfortunately, neither is straightforward to incorporate into a systematic empirical strategy, though several recent papers make progress in this direction.

That is Daron Acemoglu in a new paper on the future of development economics. Hat tip to Suresh.