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Of peacocks, development theory and empirics: ABCDE 2014

Merrell Tuck-Primdahl's picture

Development economics may be having a bit of a coming out moment, like a peacock unfurling a sheen of multicolored feathers after a long time wandering around a dusty yard with its tail feathers modestly folded.

This was my impression at the 25th  Annual Bank Conference on Development Economics at the World Bank earlier this week. ‘The Role of Theory in Development Economics’ was the theme, but the proverbial church was broad.

Kaushik Basu opened the proceedings by reflecting on the application of theory to solve the toughest development problems as well as on how empirical economics – whether through the use of regressions, randomization or big data analysis – has transformed development economics. He cautioned against adopting an only-theory or only-empirics stance and made a plea for reasoned logic and intuition.

A smorgasbord of topics were covered. They ranged from randomized control trial using aspirational videos to motivate poor people in Ethiopia, to a presentation by Michael Kremer on evaluating the impact of deworming programs in Kenya, to a fascinating talk by London School of Economic’s Maitreesh Ghatak on whether getting low income people access to capital can compensate for market failures.

At the session on the political economy of trade policy, presentations covered Chinese exports with embedded protectionism as well as a theory of trade policy under dictatorship and democratization.

Claudia Sepulveda of the World Bank chaired a session on ‘Health Risks and Insurance’ where presentations covered the effect of HIV infection risk beliefs on risky sexual behavior, the efficacy of a pilot community based health insurance scheme in Ethiopia, and the results of a study on endogenous insurance and informal relationships.

Researchers also presented on state-owned banks and fiscal discipline, FDI and financial market development, and uncertainty and economic activity from a global perspective.

Harvard's Carmen Reinhart spoke on 'The Global Financial Crisis of 2008-2009 and the Developing World: A Historical Perspective,' exploring what factors made the meltdown so protracted. She cited research she co-authored which looked at the number of years it took to recover pre-crisis peak growth for 100 crises, finding that mean is about 8 years and the median is 6.5. She warned that, in the case of the recent wave of systemic crises, the average may come in closer to 10 years.

“Why Haven’t Global Markets Reduced Inequality in Developing Countries?” was the topic of Eric Maskin’s speech. Deploying a hypothetical thought experiment with just two countries in the world (one rich, the other poor) consuming only two goods (corn and software), Maskin pondered the dynamics between skilled and unskilled workers and their managers both before and after globalization. The theory of comparative advantage would lead us to expect that inequality will narrow as competition grows and production becomes more specialized, but that hasn’t panned out in today’s context of globalized supply chains and labor out-sourcing.

Avinash Dixit of Princeton gave the final talk on ‘How Business Community Institutions Can Help Fight Corruption,’ citing two clever ‘movements’ -- the Zero Rupee Note in India and Sicily’s AddioPizzo – as examples where civil society and businesses can tip the scales against crooks or bribe seekers, whether in government or organized crime.

The papers and presentations can be downloaded from the ABCDE website and the keynote talks can be viewed there as well. Enjoy the nerdy plumage.