The Open Secret of Development Economics by Yao Yang



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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