Ideas matter: Celebrating 50 years of development economics research
Since the IGC was founded a bit more than 10 years ago, the organisation has supported many projects and researchers that gave rise to transformational ideas in the field of economic development and growth. We are today publishing The Little Book of Growth Ideas presenting a selection of these growth ideas. Given the ongoing crisis related to COVID-19, these ideas remain relevant to developing countries as they navigate and plan their economic recovery from the pandemic.
As I write to launch this new publication, it’s useful to take a step back. Development economics or the economics of growth have been important fields of research in economics for more than 50 years now. So why do we still need more research and new ideas?
Attempting to summarise 50 years of research in this blog post would be way too ambitious. Yet, one of the key learnings from this body of literature for me is that there is no recipe for triggering the growth process in all developing countries. Finding the right ingredients to kickstart the process of structural transformation is complicated, and there is still a lot to discover and to uncover to design the appropriate economic policies to boost growth for each country.
I am not suggesting that the quest of research should be to find one "big idea", a panacea that will alleviate global poverty and lead all economies to converge towards a high level of development, which has not yet been found. Instead, I believe that such an outcome will only stem from many contributions on varied fronts, each attempting to understand the series of micro transformations that are necessary to boost growth.
Transforming the public sector
Public sector organisation, for example, is still a central issue where evidence is lacking. Economic policies essential for inclusive growth – macroeconomic stabilisation, attracting foreign investment, facilitating trade, increasing competition, and building and managing industrial parks – are delivered by bureaucracies. The optimal design of government organisations that deliver structural change is thus a central question for economic development.
Just a week before the COVID-19 pandemic hit and most countries were put on lockdown, I was in Myanmar holding a series of dissemination events about my own research for the Ministry of Commerce. On this trip, I was struck again by how civil servants in Myanmar appear to be extremely energised. The ministry has more than 5,000 staff spread throughout the country – how can this firepower be leveraged to deliver more effective policies?
Two ideas in the little book provide some insight into this issue. Idea 4 looks at how civil service performance can be improved by providing incentives through merit-based pay or job postings. Idea 12 explores how a shift in mindset in investment promotion agencies – from permit-granting institutions to organisations focused on building strong relationships with investors – can enhance job creation through attracting foreign direct investment.
The value of ideas
What is the value of these research-based ideas for policymakers in developing countries and how useful are these ideas in driving policy change? A recent paper by Jonas Hjort, Diana Moreira, Gautam Rao, and Juan Francisco Santini provides some answers. The authors measure Brazilian mayors’ willingness to pay for the results of an impact evaluation on early childhood development programmes that could be implemented in their municipalities. On average, policymakers are willing to pay about USD 36 to see the study. Multiply this by the number of municipalities in developing countries and the number is staggering. In a second experiment, they find that policymakers that learn about the effectiveness of a policy to increase tax compliance are 10 percent more likely to implement the policy themselves.
Of course, in many instances, the effectiveness of a specific policy depends on the context in which it is implemented. Even if the evidence shows that a policy was effective in one country, there will never be perfect certainty that it will work in another country (reflecting this, The Little Book of Growth Ideas prudently uses the word ‘can’ for many ideas). However, these ideas and the strength of the research evidence change our perceptions about a wide range of issues – from poverty alleviation and tax reform to global trade and urbanisation.
In this book, many will find ideas that they had not thought of before, others will be intrigued or surprised by the evidence on a specific issue, and for others, the evidence presented will confirm that an idea they already had is indeed likely to work. Well identified empirical studies that take causality seriously give us information on the set of policies that are the most likely to promote growth effectively.
The impact of COVID-19
Let me end with a note on the ongoing global crisis from COVID-19. It is significantly impacting the subject of research and how research is and will be conducted for the next couple of years. Low-income countries, despite mostly having a lower cumulative number of COVID-19 cases than high-income countries so far, are being severely impacted by the effects of the pandemic. Tourists are no longer coming, trade is slowing down, and capital inflows are decreasing. Research from the IGC and many others is rightly supporting low-income countries mitigate this crisis. That said, current inequalities will only have worsened by the time the pandemic ends – firms in developing countries will still be less productive than in high-income countries, most farmers will still earn a subsistence level of income, state capacity will still be low, and many more states will have become fragile. Generating ideas to address these ongoing challenges should remain a central part of the global research agenda on economic development and growth.
This blog is part of the IGC’s Ideas Matter campaign to celebrate the launch of the Little Book of Growth Ideas.