Excerpt from Abhijit V. Banerjee and Esther Duflo book, Poor Economics:
“Economists (and other experts) seem to have very little useful to say about why some countries grow and others do not. Basket cases, such as Bangladesh or Cambodia, turn into small miracles. Poster children, such as Côte d’Ivoire, fall into the “bottom billion.” In retrospect, it is always possible to construct a rationale for what happened in each place. But the truth is, we are largely incapable of predicting where growth will happen, and we don’t understand very well why things suddenly fire up.
Given that economic growth requires manpower and brainpower, it seems plausible, however, that whenever that spark occurs, it is more likely to catch fire if women and men are properly educated, well fed, and healthy, and if citizens feel secure and confident enough to invest in their children, and to let them leave home to get the new jobs in the city.
It is also probably true that until that happens, something needs to be done to make that wait for the spark more bearable. If misery and frustration are allowed to have their way, and anger and violence take over, it is not clear that the spark will ever arrive. A social policy that works, that keeps people from striking out because they feel that they have nothing to lose, may be a crucial step toward preserving the country’s date with that elusive takeoff.
(...)
We may not have much to say about macroeconomic policies or institutional reform, but don’t let the apparent modesty of the enterprise fool you: Small changes can have big effects. Intestinal worms might be the last subject you want to bring up on a hot date, but kids in Kenya who were treated for their worms at school for two years, rather than one (at the cost of $1.36 USD PPP per child and per year, all included), earned 20 percent more as adults every year, meaning $3,269 USD PPP over a lifetime. The effect might be lower if deworming became universal: The children lucky enough to have been dewormed may have been in part taking the jobs of others. But to scale this number, note that Kenya’s highest sustained per capita growth rate in modern memory was about 4.5 percent in 2006–2008. If we could press a macroeconomic policy lever that could make that kind of unprecedented growth happen again, it would still take four years to raise average incomes by the same 20 percent. And, as it turns out, no one has such a lever.”
I have a section in the appendices “Quotes from Duflo and Banerjee” with more quotes from them from their latest book.
“Economists (and other experts) seem to have very little useful to say about why some countries grow and others do not.
We actually cite Pritchett above directly replying to this quote:
“The Venezuelan economy is not in 2018 spiraling into hyperinflation and in the midst of a tragic economic depression because “economists have little useful to say about economic growth” in the sense the advice, if followed, would be useful.”
Given that economic growth requires manpower and brainpower, it seems plausible, however, that whenever that spark occurs, it is more likely to catch fire if women and men are properly educated, well fed, and healthy, and if citizens feel secure and confident enough to invest in their children, and to let them leave home to get the new jobs in the city.
From our piece above: Admittedly, GDP and health are strongly correlated. Healthier people can work harder and learn more in school and so one might expect better health to cause growth. However, the evidence for health causing growth is weak and the effect is small:
“If improving health leads to growth, this would be a reason, beyond the welfare gain from better health itself, that governments might want to make such investments. However, the evidence for such an effect of health on growth is relatively weak. Cross-country empirical analyses that find large effects for this causal channel tend to have serious identification problems. The few studies that use better identification find small or even negative effects. Theoretical and empirical analyses of the individual causal channels by which health should raise growth find positive effects, but again these tend to be fairly small. Putting the different channels together into a simulation model shows that potential growth effects of better health are only modest, and arrive with a significant delay.” “Health and Economic Growth—CDN.” Health and Economic Growth. Accessed 20 Nov. 2018.
(Though there is some disagreement in the literature—for instance, “targeted interventions to improve the health conditions of women and children, such as iodine supplementation or vaccination against human papilloma virus, are likely to yield very high returns in terms of economic growth, well-being, and long-run development.)”)
earned 20 percent more as adults every year, meaning $3,269 USD PPP over a lifetime. The effect might be lower if deworming became universal: The children lucky enough to have been dewormed may have been in part taking the jobs of others.
But to scale this number, note that Kenya’s highest sustained per capita growth rate in modern memory was about 4.5 percent in 2006–2008.
If we could press a macroeconomic policy lever that could make that kind of unprecedented growth happen again, it would still take four years to raise average incomes by the same 20 percent. And, as it turns out, no one has such a lever.”
1. Indeed, it is crucial that there’s no general equilibrium theory of deworming and we don’t know whether these effects scale to the whole population as well as growth does. 2. Of course, the literature on this is hotly debated (c.f. worm wars). Perhaps some targeted effective investments in health might cause growth or otherwise have outsized effects on welfare.
Our best bet is the literature on the “fetal origins hypothesis” and child development, where early environment affects cognitive development and later life outcomes. Some of the effect sizes are downright incredible and its implications might be big (if true). For example, salt iodization is cheap and might improve (population-level) cognitive development and IQ. , Other examples are pollution, nutrition, disease, weather, smoking, alcohol etc.
A counterpoint though is that because growth causes population health, and income has also been shown to improve birth weight, test scores etc, growth might still dominate this.
3. Increasing growth benefits almost everyone in the economy and improving policies such as trade policies reach users with ‘zero marginal cost’. In other words, a think tank advocating for lower tariffs for Nigeria to EU markets provides a public good for all 190 million Nigerians. Adding another Nigerian due to population growth is increasing this intervention effectiveness at zero marginal cost.
Excerpt from Abhijit V. Banerjee and Esther Duflo book, Poor Economics:
“Economists (and other experts) seem to have very little useful to say about why some countries grow and others do not. Basket cases, such as Bangladesh or Cambodia, turn into small miracles. Poster children, such as Côte d’Ivoire, fall into the “bottom billion.” In retrospect, it is always possible to construct a rationale for what happened in each place. But the truth is, we are largely incapable of predicting where growth will happen, and we don’t understand very well why things suddenly fire up.
Given that economic growth requires manpower and brainpower, it seems plausible, however, that whenever that spark occurs, it is more likely to catch fire if women and men are properly educated, well fed, and healthy, and if citizens feel secure and confident enough to invest in their children, and to let them leave home to get the new jobs in the city.
It is also probably true that until that happens, something needs to be done to make that wait for the spark more bearable. If misery and frustration are allowed to have their way, and anger and violence take over, it is not clear that the spark will ever arrive. A social policy that works, that keeps people from striking out because they feel that they have nothing to lose, may be a crucial step toward preserving the country’s date with that elusive takeoff.
(...)
We may not have much to say about macroeconomic policies or institutional reform, but don’t let the apparent modesty of the enterprise fool you: Small changes can have big effects. Intestinal worms might be the last subject you want to bring up on a hot date, but kids in Kenya who were treated for their worms at school for two years, rather than one (at the cost of $1.36 USD PPP per child and per year, all included), earned 20 percent more as adults every year, meaning $3,269 USD PPP over a lifetime. The effect might be lower if deworming became universal: The children lucky enough to have been dewormed may have been in part taking the jobs of others. But to scale this number, note that Kenya’s highest sustained per capita growth rate in modern memory was about 4.5 percent in 2006–2008. If we could press a macroeconomic policy lever that could make that kind of unprecedented growth happen again, it would still take four years to raise average incomes by the same 20 percent. And, as it turns out, no one has such a lever.”
I have a section in the appendices “Quotes from Duflo and Banerjee” with more quotes from them from their latest book.
We actually cite Pritchett above directly replying to this quote:
“The Venezuelan economy is not in 2018 spiraling into hyperinflation and in the midst of a tragic economic depression because “economists have little useful to say about economic growth” in the sense the advice, if followed, would be useful.”
Whole paper is worth a read:
https://d101vc9winf8ln.cloudfront.net/documents/32264/original/RCTs_and_the_big_questions_10000words_june30.pdf?1565974982
From our piece above: Admittedly, GDP and health are strongly correlated. Healthier people can work harder and learn more in school and so one might expect better health to cause growth. However, the evidence for health causing growth is weak and the effect is small:
“If improving health leads to growth, this would be a reason, beyond the welfare gain from better health itself, that governments might want to make such investments. However, the evidence for such an effect of health on growth is relatively weak. Cross-country empirical analyses that find large effects for this causal channel tend to have serious identification problems. The few studies that use better identification find small or even negative effects. Theoretical and empirical analyses of the individual causal channels by which health should raise growth find positive effects, but again these tend to be fairly small. Putting the different channels together into a simulation model shows that potential growth effects of better health are only modest, and arrive with a significant delay.” “Health and Economic Growth—CDN.” Health and Economic Growth. Accessed 20 Nov. 2018.
(Though there is some disagreement in the literature—for instance, “targeted interventions to improve the health conditions of women and children, such as iodine supplementation or vaccination against human papilloma virus, are likely to yield very high returns in terms of economic growth, well-being, and long-run development.)”)
1. Indeed, it is crucial that there’s no general equilibrium theory of deworming and we don’t know whether these effects scale to the whole population as well as growth does. 2. Of course, the literature on this is hotly debated (c.f. worm wars). Perhaps some targeted effective investments in health might cause growth or otherwise have outsized effects on welfare.
Our best bet is the literature on the “fetal origins hypothesis” and child development, where early environment affects cognitive development and later life outcomes. Some of the effect sizes are downright incredible and its implications might be big (if true). For example, salt iodization is cheap and might improve (population-level) cognitive development and IQ. , Other examples are pollution, nutrition, disease, weather, smoking, alcohol etc.
A counterpoint though is that because growth causes population health, and income has also been shown to improve birth weight, test scores etc, growth might still dominate this.
3. Increasing growth benefits almost everyone in the economy and improving policies such as trade policies reach users with ‘zero marginal cost’. In other words, a think tank advocating for lower tariffs for Nigeria to EU markets provides a public good for all 190 million Nigerians. Adding another Nigerian due to population growth is increasing this intervention effectiveness at zero marginal cost.