Topics: INSTITUTIONAL INNOVATION

Seán Mfundza Muller, Grieve Chelwa, and Nimi Hoffmann at the Conversation: “…One view of the challenge of development is that it is fundamentally about answering causal questions. If a country adopts a particular policy, will that cause an increase in economic growth, a reduction in poverty or some other improvement in the well-being of citizens?

In recent decades economists have been concerned about the reliability of previously used methods for identifying causal relationships. In addition to those methodological concerns, some have argued that “grand theories of development” are either incorrect or at least have failed to yield meaningful improvements in many developing countries.

Two notable examples are the idea that developing countries may be caught in a poverty trap that requires a “big push” to escape and the view that institutions are key for growth and development.

These concerns about methods and policies provided a fertile ground for randomised experiments in development economics. The surge of interest in experimental approaches in economics began in the early 1990s. Researchers began to use “natural experiments”, where for example random variation was part of a policy rather than decided by a researcher, to look at causation.

But it really gathered momentum in the 2000s, with researchers such as the Nobel awardees designing and implementing experiments to study a wide range of microeconomic questions.

Randomised trials

Proponents of these methods argued that a focus on “small” problems was more likely to succeed. They also argued that randomised experiments would bring credibility to economic analysis by providing a simple solution to causal questions.

These experiments randomly allocate a treatment to some members of a group and compare the outcomes against the other members who did not receive treatment. For example, to test whether providing credit helps to grow small firms or increase their likelihood of success, a researcher might partner with a financial institution and randomly allocate credit to applicants that meet certain basic requirements. Then a year later the researcher would compare changes in sales or employment in small firms that received the credit to those that did not.

Randomised trials are not a new research method. They are best known for their use in testing new medicines. The first medical experiment to use controlled randomisation occurred in the aftermath of the second world war. The British government used it to assess the effectiveness of a drug for tuberculosis treatment.

In the early 20th century and mid-20th century American researchers had used experiments like this to examine the effects of various social policies. Examples included income protection and social housing.

The introduction of these methods into development economics also followed an increase in their use in other areas of economics. One example was the study of labour markets.

Randomised control trials in economics are now mostly used to evaluate the impact of social policy interventions in poor and middle-income countries. Work by the 2019 Nobel awardees – Michael Kremer, Abhijit Banerjee and Esther Duflo – includes experiments in Kenya and India on teacher attendance, textbook provision, monitoring of nurse attendance and the provision of microcredit.

The popularity, among academics and policymakers, of the approach is not only due to its seeming ability to solve methodological and policy concerns. It is also due to very deliberate, well-funded advocacy by its proponents….(More)”.