I’m not sure the ‘extreme scepticism’ (perhaps we could just call it scepticism?) argument is given a fair shake. Note that answering the question of what causes a country to grow is basically the big question of development economics, and as such it has received considerable attention from economists. In the Duflo and Banarjee piece, they argue that economists did find good low hanging fruit, notably misallocation of resources, but they argue this is reaching a point of diminishing returns. Economists are now struggling to find great opportunities in growth economics, and so there is a good case for looking at different approaches to development. This argument feels plausible to me, and it means you do not have to make the apparently crazy claim that economists never had significant influence on past effective growth policies.
Yes, I steelman this view in the Appendix (my view not necessarily John’s):
“Growth is not as neglected as RD, its low-hanging fruit have been picked, and the marginal dollar is not as effective”
“The evidence that macroeconomic policies, price distortions, financial policies, and trade openness have predictable, robust, and systematic effects on national growth rates is quite weak—except possibly in the extremes. Humongous fiscal deficits or autarkic trade policies can stifle economic growth, but moderate amounts of each are associated with widely varying economic outcomes.”
For instance, take the debate over trade liberalization. Recall that there was exceptionally weak global trade growth over recent years. Relatedly to the previous point, some argue that the “low-hanging fruit” of economic liberalization has already been picked. For instance, Weyl argues that in “Radical markets”:
“There is a consensus that the economic gains from further opening international trade in goods is minimal. Studies by the World Bank and prominent trade economists find that eliminating all remaining barriers to international trade in goods would increase global output by only a small amount, 0.3–4.1%. For global investment, the most optimistic estimate in the literature finds a 1.7% increase in global income from the elimination of barriers to capital mobility. Many believe that liberalization of international capital markets has gone too far. Three top IMF economists recently argued that even liberalization that has already taken place has brought limited gains to economies while generating inequality and instability.”
However, there is a debate about this and counterarguments:
Others argue that trade policy is still very relevant. Complete rich-country liberalization would, after a 15- year adjustment, increase income in developing countries by $100 billion per year, which is approximately twice current aid flows.
Also, guarding against protectionism and not losing the growth from trade might be very important: one study suggest that an “increase in tariffs to average bound rates of 44.7 percent in highly protectionist countries such as India, Bangladesh, Pakistan and Sri Lanka would translate into a decline in real income in South Asia by 4.2 percent or welfare losses of close to US$125 billion relative to the baseline by 2020”.
Pritchett too seems much more optimistic about growth diagnostics and believes that while we might not know everything, we generally have a reasonable understanding of what causes growth and can even influence it.
Pritchett has edited a whole volume on growth diagnostics, including on the causes of growth in India.
Generally, my take is that growth diagnostics might get harder the richer a country becomes, by virtue of there being less and less data from other countries on how they developed. Thus, for the poorest countries, growth diagnostics might be easiest because we can draw lessons from all other countries on they developed.
Because effective altruism often tries to focus on the poorest countries, where a dollar goes 100x further than in rich countries, there is perhaps most hope for growth diagnostics.
So perhaps Duflo is right in that “Growth is likely to slow, at least in China and India, and there may be very little that anyone can do about it.” And this is actually born out in China’s and India’s performance on the World Bank’s Doing Business indicators, where they score 63th and 31st out of 189 countries, though being relatively poor. Thus, there seem no low hanging fruit to improve their economic policy.
But in the Appendix I have an analysis where I multiply population size of every country by their poverty multiplier (i.e. $1 is worth x times more going to this country than to the richest country in the sample. See appendix 2 of this doc for more info). This can then be ordered by the utility created by increasing GDP per capita by $1. India comes out on top because of its large population (1.3bn) and relatively low GDP per capita ($6,574). China comes 3rd, because though it has a large population, it is already relatively rich ($15,531). Recall that the problem is that we might not know how to increase growth in India and China.
However, there are many very poor countries in the top 10 sample such as DRC, Bangladesh and Ethiopia—very poor countries with +100 million population. This can then also multiplied further by neglectedness/tractability criteria. For instance, in a country’s ranking on the WB Doing Business ranking divided by GDP. There one can see that, relative to its GDP per capita, China already does quite well on the Doing Business ranking. However, the DRC and Ethiopia do poorly on the doing business ranking, even relative to their GDP. These countries could be most cost-effective for economic policy assistance.
The Copenhagen Consensus Center is actually doing something along the lines of assisting countries / highlighting the need to improve their economic policies. For instance they are helping Bangladesh to improve its economy and prioritize which policies would have the highest social, economic and environmental benefits for every dollar spent. On top of their list is e-procurement across government and land records digitization—related to criteria used to rank countries on the WB Doing Business index.
Yes, I steelman this view in the Appendix (my view not necessarily John’s):
However, there is a debate about this and counterarguments:
Pritchett too seems much more optimistic about growth diagnostics and believes that while we might not know everything, we generally have a reasonable understanding of what causes growth and can even influence it.
Pritchett has edited a whole volume on growth diagnostics, including on the causes of growth in India.
Generally, my take is that growth diagnostics might get harder the richer a country becomes, by virtue of there being less and less data from other countries on how they developed. Thus, for the poorest countries, growth diagnostics might be easiest because we can draw lessons from all other countries on they developed.
Because effective altruism often tries to focus on the poorest countries, where a dollar goes 100x further than in rich countries, there is perhaps most hope for growth diagnostics.
So perhaps Duflo is right in that “Growth is likely to slow, at least in China and India, and there may be very little that anyone can do about it.” And this is actually born out in China’s and India’s performance on the World Bank’s Doing Business indicators, where they score 63th and 31st out of 189 countries, though being relatively poor. Thus, there seem no low hanging fruit to improve their economic policy.
But in the Appendix I have an analysis where I multiply population size of every country by their poverty multiplier (i.e. $1 is worth x times more going to this country than to the richest country in the sample. See appendix 2 of this doc for more info). This can then be ordered by the utility created by increasing GDP per capita by $1. India comes out on top because of its large population (1.3bn) and relatively low GDP per capita ($6,574). China comes 3rd, because though it has a large population, it is already relatively rich ($15,531). Recall that the problem is that we might not know how to increase growth in India and China.
However, there are many very poor countries in the top 10 sample such as DRC, Bangladesh and Ethiopia—very poor countries with +100 million population. This can then also multiplied further by neglectedness/tractability criteria. For instance, in a country’s ranking on the WB Doing Business ranking divided by GDP. There one can see that, relative to its GDP per capita, China already does quite well on the Doing Business ranking. However, the DRC and Ethiopia do poorly on the doing business ranking, even relative to their GDP. These countries could be most cost-effective for economic policy assistance.
The Copenhagen Consensus Center is actually doing something along the lines of assisting countries / highlighting the need to improve their economic policies. For instance they are helping Bangladesh to improve its economy and prioritize which policies would have the highest social, economic and environmental benefits for every dollar spent. On top of their list is e-procurement across government and land records digitization—related to criteria used to rank countries on the WB Doing Business index.