From UPSC perspective, the following things are important :
Prelims level : Nobel in Economics
Mains level : New approach to Poverty
So far, development economics has treated the poor either as lifeless objects that could be moved around or seen as unable to make the best of opportunities that governments offered them.
- The three development economists who have been awarded the 2019 Nobel Prize for Economics have overturned that status quo.
- They have redeveloped the field of development economics with the aid of new experimental methods that put researchers in direct contact with the poor.
- This was started by Angus Deaton, who won the Economics Nobel in 2015 for his work on the consumption choices of the poor as well as how to accurately measure poverty.
Vanguards of change
- From the view of poor – Development challenges are now viewed through an appropriate lens, the lives of the poor rather than large statistical models, with a special focus on how incentives, information, and constraints shape actual choices.
- RCTs – Their use of randomized control trials has lent credibility to poverty research and helped solve old riddles of causality.
- Evidence-based – Their expertise has led to the formulation of policies that go by evidence, not assumptions.
- Huge insights – The result has been a burst of insights and fresh answers to good questions.
- Few examples
- Does microfinance actually boost entrepreneurship among the poor?
- Why do the poor spend so much on entertainment?
- How does subsidized healthcare impact the investment that have-nots make in their own health?
- Universality – Some argue that the findings may not be universally applicable.
- Policy maker’s challenge – Tracing the causal links of one phenomenon to another could baffle those who frame policy. It really doesn’t help knowing if today’s farm investments in technology depend on whether the area’s land tenure system was based on zamindari or ryotwari a hundred years ago.
- Field trials – Field trials tend to miss the big structural changes that influence the political economy of a country.
The big lesson – Developing Economies
- They published a 2005 paper Growth Theory through the Lens of Development Economics.
- They argue that people and firms in developing economies are unable to adopt modern tools and make the most of all that’s available.
- They are held back by things such as government failure, lack of access to credit, behavioral snags and factors beyond their control.
- Aim of development policy – It should be to identify these constraints and figure out how to ease them.
Banerjee, Duflo, and Kremer have shifted the spotlight from grand plans to actual poverty as a lived reality in all its microscopic detail.