What key insights have emerged from development economics in the past decade, and how should they impact the work of the World Bank? As we gear up for the final decade in which to achieve the sustainable development goals, we’ve been discussing this challenging question at the Bank’s research department. A new working paper published today Toward Successful Development Policies: Insights from Research in Development Economics captures 13 of the most significant insights in the world of development economics, which we will introduce over the coming weeks through this blog series.
Development economics as practiced at the World Bank is a broad field, covering a dizzying array of topics from health and education to climate change, political economy, financial sector development, international trade, growth, and many more. Over the past few decades, development economics has flourished in academia as well. Previously a niche area, papers on development now regularly appear in top journals, and development economists such as Angus Deaton, Abhijit Banerjee, Esther Duflo, and Michael Kremer have been honored with Nobel prizes.
Any attempt to comprehensively summarize this rich body of research is unlikely to succeed, and we did not attempt to do so. We instead selectively focus on major areas where recent research has yielded important new insights for the practice of development policy – with immediate implications for how the World Bank should design and evaluate its projects, and how it should engage in policy dialogue with client governments around the world. We illustrate these insights with examples that cut across topical silos wherever possible to distill broader lessons for development policy. Finally, our intent is to keep this series non-technical to make these lessons accessible to a wider audience.
How To Design Policies?
The first four posts illustrate insights from recent research on the general question of “how to design policies”. Many governments around the developing world have deployed cash transfer programs as a signature policy intervention, in which beneficiary households receive cash if they comply with conditions such as ensuring that their children attend school. Berk Özler’s post summarizes recent evidence on how the design features of such programs shape their success in improving outcomes in the short and medium run. In the next two posts, Deon Filmer and Adam Wagstaff take up two key policy design questions in health and education: the importance of focusing interventions on improving the quality – and not just the quantity – of services provided, and how health and education service providers should be paid in order to ensure the delivery of quality services. The fourth post in this category approaches the question of policy design from a more macroeconomic perspective. Roberto Fattal, Hiau Looi Kee, and Sergio Schmukler use examples from macro, finance, and international trade to illustrate how policies aimed at influencing aggregate outcomes such as growth and welfare need to be informed by microeconomic evidence on the mechanisms through which these policies operate.
How To Implement Policies?
The next three posts synthesize insights from recent research on the practical question of “how to implement policies”. Well-designed and technically sound policies are of little use if they are not implemented well. Norman Loayza and Michael Woolcock provide illustrations of how the absence of complementary polices and institutions, as well as the lack of capacity in government agencies tasked with transforming policy decisions into concrete actions, can stymie successful policy implementation and outcomes. Often the ability and the will to implement policies are intertwined with politics. Vijayendra Rao and Michael Woolcock discuss the key roles of citizen accountability and the legitimacy of political decision-making processes in determining which policies are selected and how they are implemented. The third post in this section brings a sobering lesson. Robert Cull and David McKenzie note that often policies that show promising results when implemented as pilots at small scale turn out to be disappointing when implemented at scale. They point to the need for continuous evaluation and openness to course corrections as projects are scaled up to avoid such disappointing outcomes.
How To Evaluate Policies?
The next group of posts turns to the question of “how to evaluate policies.” One of the most striking trends in economics – and particularly in development economics – in the past decade or two has been the increase in the seriousness with which the profession has taken the identification of causal effects of policies on outcomes. As Xavier Giné and Hanan Jacoby write, this has most visibly come through the mainstreaming of randomized controlled trials as a tool to evaluate policy interventions. This has been accompanied by increasingly creative use of natural experiments to identify causal effects in circumstances where randomization is not possible or desirable, as well as by more carefully combining economic theory with empirical evidence to shed light on underlying mechanisms. The scope for insightful evaluation of policy outcomes has also broadened remarkably over the past decade as economists have been able to draw on nontraditional data sources, ranging from satellite imagery to cell phone records. Robert Cull, Dean Jolliffe, and Vijayendra Rao provide examples of how these new data types, combined with new tools such as machine learning and natural language processing algorithms, have shed new light on old questions.
Examples of Policies That Work
The last set of four posts covers an assortment of policy domains where recent research has provided new insights on the effects of policies. Sergio Schmukler, Michael Toman, and Adam Wagstaff draw on examples as disparate as early childhood development, financial crises, and environmental degradation to illustrate the general principle that early policy interventions at large enough scale can be highly cost- effective. They also discuss why, despite these high returns, opportunities for early intervention often are missed. Susmita Dasgupta and Michael Toman describe the accumulating evidence that investments to improve resilience to climate change can have big payoffs in terms of development outcomes. Leora Klapper discusses how the combination of policy and technological changes that have enabled widespread access to digital financial transactions have improved outcomes for users in a variety of ways. Finally, Erhan Artuc and Bob Rijkers synthesize what we have learned from recent research on the size of the welfare gains from trade – and more importantly about how they are distributed across people, space, and sectors.
This series of blog posts on thirteen key insights from development economics is drawn from a new World Bank Policy Research Working Paper: Toward Successful Development Policies: Insights from Research in Development Economics.
List of individual blog posts:
Insight #1 on how to design cash transfer programs