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Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development

Angus Deaton ()

No 14690, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development. There is skepticism about the ability of econometric analysis to resolve these issues, or of development agencies to learn from their own experience. In response, there is movement in development economics towards the use of randomized controlled trials (RCTs) to accumulate credible knowledge of what works, without over-reliance on questionable theory or statistical methods. When RCTs are not possible, this movement advocates quasi-randomization through instrumental variable (IV) techniques or natural experiments. I argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding: two key issues are the misunderstanding of exogeneity, and the handling of heterogeneity. I illustrate from the literature on aid and growth. Actual randomization faces similar problems as quasi-randomization, notwithstanding rhetoric to the contrary. I argue that experiments have no special ability to produce more credible knowledge than other methods, and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority. I illustrate using prominent experiments in development. As with IV methods, RCT-based evaluation of projects is unlikely to lead to scientific progress in the understanding of economic development. I welcome recent trends in development experimentation away from the evaluation of projects and towards the evaluation of theoretical mechanisms.

JEL-codes: C21 C31 C9 C93 O11 O12 O19 O22 (search for similar items in EconPapers)
Date: 2009-01
New Economics Papers: this item is included in nep-dev and nep-ppm
Note: AG EFG HC
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Working Paper: Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development (2009) Downloads
Working Paper: Instruments of development: Randomization in the tropics, and the search for the elusive keys to economic development (2009) Downloads
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