Does the micro evidence tell us anything important about development?

Another plug for grand theory, and disparagement of empirics.

Development economists spend their time these days performing randomized controlled experiments, in which a particular intervention like co-payments for mosquito bed nets are introduced into one group of villages and not into another matched set. This approach establishes causality with a level of certainty approaching that of the randomized trials used in pharmaceutical testing. But while such experiments are useful for evaluating the effectiveness of certain types of public policies, they all operate at a very micro level and don’t aggregate upwards into an understanding of the broader phenomenon of development. It is hard to imagine that all the work being done under this approach will leave anything behind of a conceptual nature that people will remember fifty years from now.

That is Francis Fukuyama, starting off an essay on Albert Hirschman, the great development economist who charted a very different path. (h/t to this commenter)

One of the great puzzles to me is why great thinkers commonly disparage other paths to knowledge. It’s politically effective, if your aim is to promote your agenda over theirs, but most of the time it’s tribal, self-serving, and hinders progress.

It’s certainly tempting to think that the quantitative and micro evidence doesn’t add up to much. Experiments and micro evidence are no panacea, but to say they haven’t changed our fundamental concepts of development and poverty reveals ignorance of the best literature.

Here’s a sample of review articles where the evidence shook my basic conceptions of how development works. All are required reading in my PhD course on political economy of development (along with Hirschman):

  • If you wanted to see how micro evidence has changed our understanding of who is poor and why, on everything from nutrition to capital, I would read Poor Economics by Banerjee and Duflo.
  • If you wanted to understand the new micro evidence helps explain growth puzzles and patterns of cross-country development, I’d recommend their more technical Growth Theory Through the Lens of Development Economics.
  • Psychology and behavioral economics is changing the way we think about economic change small and large. Sendhil Mullainathan’s new book will probably help fill this gap when it’s out, but in the meantime you can read his 2004 piece.
  • Pande and Udry and Besley and Ghatak both summarize how the micro evidence has changed our fundamental concepts of property rights and institutions, and ways (expected and not) they influence development.
  • Olken and Pande and Banerjee, Hama, and Mullainathan do the same for corruption and development.

To me, the great problem with some of the most interesting questions of political economy (“Who votes, protests, riots or rebels, and why?”, for instance) suffer from a terrific absence of microfoundations and good evidence. Grand theories and case studies are abundant, and important, but alone ultimately fail to answer the questions.