January 12, 2012

At Foreign Affairs, Timothy Besley asks “why are some countries rich and others poor?”

He then takes us on an interesting, albeit brief, journey into the development of economics itself, arguing that while poverty poses the greatest challenge to the discipline, traditional economics itself does not do the problem justice.

Here, he takes a look at how the field has evolved with advances in development economics – namely, the use of micro-level data and behavioral models. Besley highlights three book choices, all penned in part by J-PAL/IPA research affiliates, that he thinks are “refreshingly bottom-up”: Poor Economics, by Abhijit Banerjee and Esther Duflo; More Than Good Intentions, by Dean Karlan and Jacob Appel; and Portfolios of the Poor, by Daryl Collins, Jonathan Morduch, Stuart Rutherford, and Orlanda Ruthven.

Says Besley, “Written in language sure to appeal to a general reader, they all focus on the micro level of poverty and on the human conditions that underlie it. Their authors make extensive use of vignettes -- an unusual move for economists -- ­introducing readers by name to real people whose stories illustrate broader concepts.”

Besley notes that the conventional wisdom that all economic actors (including the poor) are rational decision makers has been challenged over the past 30 or so years, in which “economists have increasingly taken into account the psychology of decision-making.” Psychological insights into the impact of stress on decision-making, for example, have given development researchers much to consider when studying the behavior of the poor.

“Research methods are changing, too. One of the most important innovations in economists' tool kits has been the use of randomized control trials to evaluate what works -- studies, like those in medicine, that compare the outcomes for a randomly selected treatment group (which receives, for example, subsidized fertilizer) with those for a control group.”

Besley notes that all of this is part of a push for evidence-based policymaking within the field of international development. We’re proud that he identified IPA and MIT’s Poverty Action Lab as being drivers of this effort, and he noted that “three of the authors … Banerjee, Duflo, and Karlan -- played leading roles in establishing these institutions.”

Read Besley’s full piece here.