Is Dani Rodrik moody?

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The answer seems to be "yes", according to a new post by Bill Easterly on Rodrik's views on industrial policy. (For the full back-and-forth, see Easterly's first post on the topic and Rodrik's response.) Easterly charges that Rodrik's support for industrial policy is based on a statistical fallacy - just because some states that have implemented industrial policies have been successful does not mean it's a particularly good path for a developing country to follow. Easterly explains:

Dani’s evidence is based on what he believes is the high probability that IF you have had steady growth for six decades, THEN you had industrial policy. This is interesting, but this is not the right probability in deciding whether to choose industrial policy, which is "IF you have industrial policy, THEN what is your chance of steady growth for six decades?”

This second, correct, probability would seem to be pretty low, since many other countries -- especially African and Latin American -- extensively tried industrial policies over the past six decades with low and erratic growth as a result.

Although these two economists often seem opposed in their policy conclusions, I have admired both of their work. I've only just realized after reading this debate that what I admire is actually a quality they both share: Rodrik and Easterly are both committed to an experimental approach to development. The difference is where experimentation takes place: Rodrik is more keen on experimentation on the level of macroeconomic and industrial policies, whereas Easterly is more convinced of the merits of a multitude of small-scale experiments at the level of the entreprenuer (apologies to both for condensing what are in fact much more complex views). The question I am left with then - is there room for experimentation on both levels simultaneously, or does industrial policy constrain the opportunities for small-scale experimentation?

Update: Bill was kind enough to email me a response to this post:

Ryan, that's a great way to put it, micro vs. macro experimentation. I guess where I really don't get how Dani's macro experimentation can work, is that how do we know whether the result of a macro experiment in a particular country was positive or negative? Dani is himself convincingly destructive about how much we can learn from aggregate macro empirics on policies, so what is he going to use as evidence that something worked? A good or bad short-run (or even medium run) macro outcome has too much transitory noise and other determinants to be of any use as evidence. So to paraphrase the title of one of Dani's recent papers: we can do macro experiments, but can we ever learn? The answer would seem to be no.


Ryan Hahn

Operations Officer

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