What’s the alternative to randomized control trials in development research?

Daron Acemoglu calls for more structural theory, more general equilibrium, and more political economy in development economics.

Here’s an example.

As an example of composition e¤ects, consider the problem of estimating the importance of credit market imperfections. Banerjee and Du‡flo (2005) survey a large body of evidence that small and medium-sized businesses in less-developed economies are credit constrained and an extension of credit to these businesses will make them increase production.

Now consider the effect of a large-scale policy of credit expansion to small- and medium-sized businesses. This policy could lead to a different type of composition effect than the one operating in partial equilibrium.

For example, it may be the case that in partial equilibrium estimation focusing on …firm-level variation we found that …firms with better access to credit expanded, but this was at the expense of other …firms that did not have access to credit (that is, partly by “stealing business” from others).

And yet, the same response cannot take place in general equilibrium. As a consequence, when additional credit becomes available to a large fraction of… firms, total output may not increase by as much or at all.

One could thus imagine a situation in which partial equilibrium estimates of relaxing credit constraints are large, while the general equilibrium e¤ects would be small.

Well, ‘complement’ is probably a better word than ‘alternative’.

The entire profession has gravitated towards more field experiments. One of the leading lights has just gotten the MacArthur genius award and the Clark Medal. If I were a first year graduate student, I’d start running in the opposite direction of RCTs. Acemoglu’s giving you a new target.