Some decades ago, development economists saw their approach as being distinctive compared to mainstream economics in general and better grounded in the reality of actual economies. This column argues that two trends over the last decades – the significant improvement in the average income of what were called developing countries and the homogenisation of economics methodology across the board – mean that the distinction between development economics and economics in general is increasingly untenable and indeed unnecessary.
Is there a development economics anymore? This may seem an odd time to pose such a question given that the 2019 Nobel Prize in Economics was awarded to Abhijit Banerjee, Esther Duflo and Michael Kremer for their work in development economics (Svensson 2019) and the 2015 Nobel Prize in Economics went to Angus Deaton partially for his work also in development economics. (Incidentally, Amartya Sen’s 1998 Nobel Prize in Economics was for his contributions to welfare economics, and the 2006 Nobel Prize to Mohammed Yunus for the development of microcredit was not for economics – it was the peace prize.) At the same time, leading universities in the West have been establishing centres for the study of development, with development economics at their core, over the past two decades and right up to the present. So why the question?
I want to argue that two trends over the last three decades – one empirical and one methodological – bring into question whether there is or can be anymore a sub-field of economics with its past characteristic features (Kanbur 2024). The empirical trend is the significant improvement in the average income of what were called developing countries. The methodological trend is one of homogenisation of economics methodology across the board, across the many sub-fields, such that development economics no longer stands on its own along that dimension.
Developing countries and development economics
Using standard World Bank definitions of low-income, middle-income, and high-income, between 2003 and 2019, the number of low-income countries fell from 66 to 31. The number of people living in low-income countries declined from 60% in 1993 to under 10% in 2019. Indeed, as Andy Sumner (2012) so strikingly pointed out, the vast bulk of the world’s poor do not now live in low-income countries. The ‘graduation’ criteria of concessional aid mean that the bulk of the world’s poor will be excluded from these resources since they do not live in the eligible low-income countries. And attempts to continue channelling aid to countries that are now no longer low-income will lead to political strains in donor countries amid paradoxes such as recipient countries themselves having aid programmes (Kanbur and Sumner 2012). Of course, none of this is to deny the real poverty in those countries still in the low-income category, many of which are also states with internal conflicts, or the poverty in middle-income countries. It is only to highlight that the classifications and mindsets of yesteryear are increasingly no longer valid.
If the rationale for having a separate sub-field in economics was that it was to focus specifically on the economics of those countries that were (more or less) in the low-income category, that was a substantial number of countries and a bulk of the world’s population and poor population, half a century ago. But that is no longer the case. Will development economics then become the study of a ‘rump’ of countries, mostly in Africa, left in the low-income category? Some relief may be found by including the next category of lower-middle-income countries. This will add more countries but also a lot of population because India (but not China) is in this category. Another element of relief may be found by saying that development economics is not the study of poor countries but of poor people no matter where they live (including India, for example). But both these escape routes may be short-lived if past patterns continue and economic growth proceeds to lift countries and people out of older absolute categories. Turning to social indicators may be of little help since these have also been improving significantly.
The methodology of economics and development economics
Some decades ago, development economists saw their approach as being distinctive compared to mainstream economics in general. They saw development economics as being better grounded in the reality of actual economies, where markets did not function as set out in the textbooks and neither did individuals behave in textbook rational fashion.
Gunnar Myrdal’s (1968) Asian Drama or Albert Hirschman’s (1958) The Strategy of Economic Development are iconic works, which capture a style and substance of reasoning that was the development economics that was. Gunnar Myrdal came to the institutional economics framing of Asian Drama after having mastered and then turned away from the economic theory of his time (Kanbur 2019). Hirschman’s work is steeped in narrative, building on his experiences in Latin American development projects.
It is not that there was no theory in these contributions. But this broad approach and method was at odds with the direction economics itself was increasingly taking methodologically in the postwar period. In the realm of theorising and framing, simplified models making sharp points in specific settings were taking over. Paul Krugman (1995) indicted the Myrdal-Hirschman approach for the growing irrelevance of development economics as a sub-field of economics:
“Hirschman’s Strategy appeared at a critical point in this methodological crisis. It is a rich book, full of stimulating ideas. Its most important message at that time, however, was a rejection of the drive toward rigor. In effect, Hirschman said that both the theorist and the practical policymaker could and should ignore the pressures to produce buttoned-down, mathematically consistent analyses, and adopt instead a sort of muscular pragmatism in grappling with the problem of development. Along with some others, notably Myrdal, Hirschman didn’t wait for intellectual exile: he proudly gathered up his followers and led them into the wilderness himself. Unfortunately, they perished there.”
Krugman’s indictment was not that the ideas in Hirschman and Myrdal were irrelevant. Quite the contrary. The insights on interlinkages, increasing returns, and cumulative causation were central. But they would not, could not, have an impact on the profession in the mode in which they were developed and transmitted:
“Economic theory is essentially a collection of models. Broad insights that are not expressed in model form may temporarily attract attention and even win converts, but they do not endure unless codified in a reproducible – and teachable – form… . Myrdal’s effective presentation of the idea of circular and cumulative causation, or Hirschman’s evocation of linkages, were stimulating and immensely influential in the 1950s and early 1960s. By the 1970s (when I was myself a student of economics), they had come to seem not so much wrong as meaningless. What were these guys talking about? Where were the models? And so high development theory was not so much rejected as simply bypassed.”
The state of affairs presaged, and wished for, by Krugman is now upon us. A generation of scholars, myself among them, wanted development economics to be methodologically on par with the rest of economics, and they have succeeded. The vaunted ‘top five’ journals in economics are replete with ‘development economics’ papers, meaning by this that they address issues which are seen to be relevant to ‘developing countries’.
The trend in development economics has been part of an overall trend in economics towards methodological convergence in theory and empirics. In empirical work, the ‘causality’ or ‘credibility’ revolution that was led by labour economics is now dominant and absorbs much of the attention of young economists throughout the discipline. Development economics is no exception and indeed the sub-field may be said to have led the movement in an important sense, through the emphasis by field leaders like Banerjee, Duflo and Kremer on randomised controlled trials (RCTs) as the ‘gold standard’ of empirical work, which eventually won them the 2019 Nobel Prize in Economics. There are of course debates on the validity and efficacy of RCTs, with another Nobel Prize-winner Angus Deaton taking a critical perspective (Deaton and Cartwright 2018, Reddy 2012). But even these debates reflect the integration of development economics into overall economics, since the debates are general to economics, not specific to development economics.
In the realm of theory and conceptualisation, many of the ‘old’ development economics perspectives on departure of individual choice behaviour from textbook rational choice theory, or of market failure, are now seen as very much part of mainstream economics debates (Hoff et al. 2015, Hoff and Stiglitz 2016.). The idea that poor rural peasants were more bound by myopia or social conventions than their city counterparts in rich countries is belied by several decades’ worth of research into behavioural economics, which has led to its own Nobel prizes in Economics for Herbet Simon, Vernon Smith, Daniel Kahneman, and Richard Thaler. The idea that what distinguished developed economies was that they had better functioning markets has been questioned by the financial crises that gripped the world in 1997 and 2008. And the debates on market versus state are increasingly seen as universal and timeless, not confined to one stage or another of ‘development’ (Kanbur 2021). Sure, context matters. But it matters everywhere, and there is less and less a grand distinction between developed and developing based on income to drive the categorisation.
Conclusion
For these reasons, I see the distinction between development economics and economics in general as being increasingly untenable and indeed unnecessary. Of course, institutional inertia will keep things going for quite a while – hiring lines will continue to be designated as being for development economics, centres for development economics will continue to be set up for some time. Development aid ministries will continue to generate some demand for personnel even as they pivot to global public goods such as climate change or pandemics. But mostly, on present trends, the distinction will wither on the vine.
Source : VOXeu
