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October 2019

The new gold standard in development economics?

By Development economics No Comments

As RCT Becomes Dominant, Randomistas Could Change Social Science Paradigm

Development economics has changed a lot over the past two decades or so, mainly due to the heavy use of “randomized controlled trials” (RCTs). Randomistas are proponents of RCTs for assessing long-term economic productivity and living standards in poor countries. Three randomists, Abhijit Banerjee, Esther Duflo and Michael Kremer, received the 2019 Nobel Prize in Economics for their RCT-based studies of poverty around the world.

An evolution

The concept of RCT is quite old; cases of RCT can be traced back to the 16th century. However, the statistical basis for RCT was developed by the British statistician Sir Ronald Fisher about 100 years ago, mainly in the context of the design of experiments.

In my experience, I have seen the proportion of events with the same treatment vary between 10% and 35% in different clinical trials. Is it due to an unknown distribution of treatment effects and / or other external effects such as hospital care, hospital location, etc. ? Thus, for an unbiased evaluation of the treatment, its performance should be compared to a “control”, which may be “no treatment” or an “existing treatment” other than the treatment under study.

The next task is to divide the patients between two treatments / interventions at hand. Patients may prefer one treatment over another. Prior knowledge of the treatments to be applied to them could induce a “selection bias” due to unequal proportions of patients unsubscribing from the study. “Randomization” is a procedure used to prevent this by assigning patients using a random mechanism – neither the patient nor the doctor would know the assignment.

“Control” and “randomization” together constitute an RCT. In 1995, statisticians Marvin Zelen and Lee-Jen Wei illustrated a clinical trial to evaluate the hypothesis that AZT antiretroviral therapy reduces the risk of mother-to-child transmission of HIV. A standard randomization scheme was used, resulting in 238 pregnant women receiving AZT and 238 receiving standard treatment (placebo). It is observed that 60 newborns were seropositive in the placebo group and 20 newborns were seropositive in the AZT group. Thus, the placebo failure rate was 60/238, while that of AZT was only 20/238, indicating that AZT was much more effective than placebo. Drawing such an inference, despite the heterogeneity among patients, was only possible through randomization. Randomization makes different treatment groups comparable and also helps to estimate the error associated with inference.

The first applications of RCTs mainly concerned the agricultural field. Sir Ronald Fisher himself was very reluctant to apply statistics to the social sciences, due to their “non-experimental” nature. RCT has grown in importance in clinical trials since the 1960s, so much so that all clinical trials today without RCT were considered almost useless.

Mark a change

Social scientists have slowly discovered that RCT is interesting, feasible and effective. But, in the process, the nature of the social sciences has slowly changed from “non-experimental” to “experimental”. Many interesting applications of RCTs took place in social policy making during the 1960s-90s, and the “randomists” took control of development economics since the mid-1990s. About 1000 RCTs were conducted by Professor Kremer, Professor Banerjee and Professor Duflo and their colleagues in 83 countries such as India, Kenya and Indonesia. These were to examine various dimensions of poverty, including microfinance, access to credit, behavior, health care, immunization programs and gender inequality. While Prof. Banerjee believes that RCTs “are the easiest and best way to assess the impact of a program”, Prof. Duflo refers to RCTs as “the tool of choice”.

Finland’s Basic Income Experiment (2017-18) garnered considerable international attention, where 2,000 unemployed Finns aged 25 to 58 were randomly selected across the country and received € 560 per months instead of basic unemployment benefits. The results of the first year data did not have a significant effect on the employment of the subjects, compared to the control group comprising individuals who were not selected for the experimental group. Essentially, it was also an RCT.

Critics of RCTs in Economic Experiments believe that to conduct RCTs the larger problem is cut into smaller pieces, and any dilution of the scientific method leaves the conclusions questionable. Economists such as Martin Ravallion, Dani Rodrik, William Easterly, and Angus Deaton are very critical of the use of RCTs in economic experiments.

Randomization in clinical trials has an added boost – it ensures that the assignment to a particular treatment remains unknown to the patient and the doctor. This type of “blindness” is central to the philosophy of clinical trials and helps reduce certain types of bias in the trial. It is believed that the “outcome” or “response to treatment” could be influenced if the patient and / or physician is aware of the treatment being given to the patient. However, this type of “blindness” is almost impossible to implement in economic experiments, as the participants would certainly know whether they are receiving financial aid or training. So the randomization should have much less impact. Often, economists miss such an important point.

However, unless randomization is performed, most standard statistical analyzes and inference procedures become meaningless. Previous social experiments lacked randomization and this could be one of the reasons statisticians like Sir Ronald Fisher were unwilling to use statistics in social experiments. Thus, “RCT or no RCT” may not simply be a political decision for the economy; it is the question of the paradigm shift. The “tool” comes with a lot of implied baggage. As randomization dominates development economics, implicitly, economic experiments are becoming more and more statistical. This is a philosophical aspect that economists must deal with.

Apparently, for now, many would agree with Harvard economist Lant Pritchett who criticizes RCTs on a number of points but still agrees that it “is superior to other valuation methods.” The debate would continue, as randomistas continue to gain momentum at this time.

Atanu Biswas is Professor of Statistics, Indian Statistical Institute, Kolkata

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New Teacher’s Q&A: McGuirk talks about teaching plans and development economics

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Native Ireland, Eoin McGuirk is a assistant professor of economics who joined Tufts this semester. He teaches Basic econometrics (EC-0015). The Tufts Daily spoke to him to find out more about his background, research plans and plans to Tufts.

Daily Tufts (TD): Can you tell us about your background?

Eoin McGuirk (EM): I just Galway West of Ireland. I’ve studied French and economy during my undergraduate years at the National University of Ireland, and I also spent a year at Montpellier, [France]. During my junior and senior years I wasn’t quite sure what I was going to do with my life, but I was always interested in international development, so I made a MA in Economics at University College Dublin. By the time I finished my masters, I was sure that economics was the discipline that would speak to me the most after meeting some amazing mentors and influential professors. I was then prompted to make a Doctorate, which was not something that interested me from a young age; it was a case of what seemed attractive to me at the moment. I did a doctorate in economy To Trinity College Dublin, and I have spent the last two years at the University of California, Berkeley, which was my first introduction to academia in the we Since then there have been a lot of jumps. I did a project in Sierra Leone, spent time in Sweden then I had postdoctoral appointments and Brunette college and Yale University. I met my current wife who is from we, which sort of sealed off where I would end up. Now I am an assistant professor at Tufts in the economics department.

TD: Why Tufts?

EM: Tufts has real strengths in the areas that interest me: development economics, which deals with the economics of poverty and the way out of poverty in the world, and political economy, which uses the tools of economics to understand the political behavior of voters and government institutions. The other reason why Tufts was so well suited that he is very good at applied econometrics – the tools we use to study our fields. It’s great to be in an environment where there is so much emphasis on studying economics. The students are exceptional and the teachers take teaching seriously. Looking at the big picture, living in this part of the we, in particular the Boston region, is second to none.

TD: What are you teaching this semester?

EM: i teach Basic econometrics, which is a compulsory class for people who major in economics. Students will have taken introductory economics and statistics classes, so this will be a way to use statistics to test economic theories in an attempt to determine what causes what in economics. I like it because I think the students are great. They seem engaged, or at least they’re good at pretending, which is just as rewarding for me. There are two small sections – this is the kind of thing that works well in a small group because there is a lot of unfamiliar material for the students. I hope the students get something out of it. What I told them at the beginning is that with econometrics, my goal is not to teach everyone to become an economics researcher. There are critical thinking tools in econometrics that will help you whatever you do, even if you never take an economics class again. Structuring a problem by analyzing its correlation will help students develop the skills to think carefully about that problem in their lives. A basic understanding of econometrics can help you consume research by learning to filter out absurd interpretations of data and make more thoughtful inferences. So maybe I’m a little optimistic about what students can learn from an introductory course, but that’s what I hope some of them are feeling.

TD: Can you tell us about your research?

EM: I mentioned that my interests lie in the overlap of development economics and political economy. One of the subdomains at this intersection is the economics of violent conflict. My last three projects focused on conflict. I’ll give you an overview of what I’ve been working on.

In one of my projects, I wanted to examine the relationship between poverty and conflict. In economics, we ask a classic question related to this discipline: does conflict cause poverty, or does poverty cause conflict? Usually you see conflict in fairly poor areas, and you don’t see civil conflict in fairly wealthy areas. Alongside the co-author Marshal Burke, we examined whether economic shocks (negative economic events) can trigger civil strife in Africa. We had to find an economic shock that was not caused by conflict in Africa focus on… we wanted to experimentally change the increments in some places and not change the increments in other places, using this to determine how the conflict reacts to that. Obviously, we had to turn to a natural experiment because we didn’t have the research budget or the IRB (Institutional Review Board) approval to go ahead with something like that. We have studied what happens after the change in world food prices – world food prices vary for several reasons, but nothing within Africa will wreak havoc on global food prices. We saw that when world food prices increased, there was less civil conflict in the areas that cultivated these crops because the income came in. We saw more civil strife in the areas that consumed these crops, that is, when incomes fell and things became more expensive for consumers. This allowed us to conclude that negative economic shocks cause conflicts in Africa and that when food prices change, you can determine where the conflict decreases and increases.

Right now what I have started recently is to examine how weather events can cause conflict in Africa through migration. If you have a drought in a pastoral area where nomadic areas live, people will migrate to find water. There are often conflict events in the new areas to which nomadic groups migrate.

TD: What do you hope to accomplish at Tufts?

EM: There is a teaching side and a research side. On the teaching side, I can’t wait to see what the students have gained from being in my class. The assessments you complete are important to us teachers. I think basic econometrics are fundamental to the social sciences, so I look forward to modifying the course based on the feedback I get from students. I am also very excited to develop my own course, which I will probably do next year. The subject of political economy really has a moment, so I would like to develop a course for juniors and seniors to explore it. Students would be able to apply their basic skills in microeconomics and econometrics to political problems. This is my dream course, so I hope at least two students show up. On the research side, the experience has already been fruitful and I hope to use the tools of Tufts extend my research. We have internal seminars where we can get feedback on early reflections and ongoing projects that have been beneficial. There is also a new doctorate program that is at the forefront of my mind, which is the PPE (Economy and public policy) joint program with the Fletcher School [of Law and Diplomacy]. Students can specialize in development economics, environmental economics, or political economy in their second year. It’s going to be super exciting to see where the program is going, as it’s only in its third year. I’m excited to make changes to the curriculum alongside other economics professors after seeing how the First Cohort finds its experience and enters the workforce.

TD: Do you have any tips for freshmen?

EM: I was at a retirement event for an economist, and was asked if he had any advice for young researchers. In a roundabout way, he said that everyone’s situation is so different because of their different backgrounds and experiences. Universal advice almost makes no sense. We all have our own way. I’m not sure if there is any other advice I can give other than the obvious tips. If you go to class, study with your friends, and do all your homework, then you will have a good time. Stay on top. This is the most boring universal advice I can imagine. Also, talk to your teachers. It’s a good secret: professors love to talk about their research. Don’t be intimidated to meet them during their office hours as we love when a student is interested in our work and our subject. Maybe this tip was a little less boring, I hope.

TD: Do you have any fun facts about yourself that you would like to share?

EM: I can’t imagine that there are any fun facts that I would like to share… No, I shouldn’t say that. There are no skeletons in my closet. [Laughs] But I have the best dog in the world! He’s a 10-year-old black Labrador. Maybe I’ll take him to campus someday so people can say hello.

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The Open Secret of Development Economics by Yao Yang

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For many in China, this year’s commemorative Nobel Prize in Economics appears to have shone the spotlight on one area of ​​development economics to the detriment of another. While randomized controlled trials can be useful in creating or improving social protection programs, they cannot tell poor countries how to achieve and maintain rapid growth.

BEIJING – This year’s Memorial Nobel Prize in Economics recognizes Abhijit Banerjee, Esther Duflo and Michael Kremer for their work using randomized controlled trials (RCTs) in development studies. This year’s selection drew a wide range of reactions from around the world, not least because RCTs are a source of controversy among academic economists. To many in China, the Nobel Committee once again seems to have missed the Chinese experience of development, which, after all, had nothing to do with RCTs.

Of course, some of these reviews are akin to sour grapes. The Nobel Prize has only been awarded to three Chinese nationals – for literature, medicine and peace – since its inception. Nonetheless, China’s economic history offers important lessons that the current approach to RCT-focused development research has missed. Researchers in this field seem to have forgotten the wisdom of classic development economists of the 1950s: economic development is about taking the difficult but necessary steps to achieve sustained growth.

For example, increasing domestic savings is very difficult, but imperative. Classical development economists such as Pei-Kang Chang, Roy F. Harrod, Evsey Domar, and Robert Solow have seen that saving is essential for boosting economic growth in a poor country. Their central point of view was mainly intuitive: even subsistence farmers know that in order to improve one’s life in the future, one has to save money in the present, in order to buy another plot of land or better equipment with which to improve its current plot.

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