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The Open Secret of Development Economics

To many in China, this year's Nobel Memorial Prize in Economic Sciences seems to have shone a spotlight on one area of development economics at the expense of another. While randomized controlled trials might be useful for creating or improving welfare programs, they can't tell poor countries how to achieve and sustain rapid growth.

BEIJING – This year’s Nobel Memorial Prize in Economic Sciences recognizes Abhijit Banerjee, Esther Duflo, and Michael Kremer for their work using randomized controlled trials (RCTs) in developmental studies. This year’s selection has elicited a broad array of reactions from around the world, not least because RCTs are a source of controversy among academic economists. To many in China, the Nobel Committee seems once again to have missed the Chinese development experience, which, after all, had nothing to do with RCTs.

To be sure, some of this criticism amounts to sour grapes. The Nobel Prize has been awarded to only three Chinese nationals – for literature, medicine, and peace – since its inception. Nonetheless, China’s economic history offers important lessons that today’s RCT-driven approach to development research has missed. Researchers in the field seem to have forgotten the wisdom imparted by the classical development economists of the 1950s: economic development is about taking the difficult but necessary steps to achieve sustained growth.

For example, increasing domestic savings is very difficult, but imperative. Classical development economists such as Pei-Kang Chang, Roy F. Harrod, Evsey Domar, and Robert Solow saw that savings are essential for jump-starting economic growth in a poor country. Their central insight was mostly intuitive: even subsistence farmers know that improving one’s life in the future requires saving some money in the present, in order to purchase another piece of land or better equipment with which to improve one’s current plot.

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