Wednesday, September 1, 2010

Development economics in historical context

Hollis Chenery and T. N. Srinivasan published the Handbook of Development Economics in 1988.  It was state-of-the-art in the late 1980s.  It is interesting to look back at the Handbook twenty-two years later to see how it stands up today.

First, the contributors.  The volume is a dream-team of development thinkers from the 1970s and 1980s: Amartya Sen, Arthur Lewis, Pranab Bardhan, Joseph Stiglitz, Peter Timmer, Nancy Birdsall, Paul Streeten, and Dwight Perkins, to name only a small subset of the authors.  (There are 33 essays in volumes I and II.)  Several currently important figures are not represented -- Arturo Escobar, Jeffrey Sachs, and Dani Rodrik, for example.  Escobar's Encountering Development: The Making and Unmaking of the Third World appeared in 1994; Jeffrey Sachs's The End of Poverty: Economic Possibilities for Our Time didn't appear until 2005; and Dani Rodrik's One Economics, Many Recipes: Globalization, Institutions, and Economic Growth appeared in 2008.  So it is certainly true that the field has moved forward with the emergence of new voices and perspectives since 1988.  But it is also true that the volume represents a very deep body of knowledge about some of the dynamics and policy choices pertaining to economic development.

More important is the question of the range of perspectives on development represented in the volume.  Development thinking has tended to swing from progressive to neo-liberal over the decades.  Progressives have paid more attention to distribution, poverty, and social provisioning; whereas neo-liberals have focused on markets and "getting the prices right," with little appetite for redistribution, government subsidies, or serious efforts at poverty reduction.  Gunnar Myrdal, Amartya Sen, and Arturo Escobar represent three generations of progressive development theorists; perhaps Peter Timmer, Malcolm Gillis, and Jeffrey Williamson fall closer to the neo-liberal end of the spectrum.  I would judge that the Handbook does a pretty good job of finding the middle of the spectrum.  Chenery's own emphasis on the importance of redistribution in development (Redistribution with Growth) places him closer to the progressive end, along with Pranab Bardhan, Irma Adelman, and Lance Taylor (each of whom has a contribution in the volume).  The book pays attention to "alternative approaches" to economic development as well as poverty-related issues like health and nutrition.  The book does a good job of combining a clear vision of the goals of economic development -- improvement of human welfare -- with technical economic analysis of growth, labor markets, and trade.  And many of the authors explicitly recognize the point that development economics benefits from theoretical pluralism; the approach is not narrowly neo-classical.

Here are a few interesting observations from several contributors:

Pranab Bardhan:
Development economics as a separate branch of economics originated in a widespread perception of the limited usefulness of orthodox economics, and even though its pristine separatism has mellowed over the years it retains to this day its contrary, unruly, if somewhat flaky, image in the eyes of mainstream economics.  Standard neoclassical economics is mainly on the defensive in this terain and a number of alternative approaches clash and contend for our attention. (40)
Joseph Stiglitz:
The central questions facing development economics are: Why is it that some countries are so much poorer than others?  What can be done to make them grow faster? Faster growth is needed if the gap in living standards is not to be widened even further. (94)
J.G. Williamson:
What explains the timing and the extent of the transition from a traditional rural to a modern urban society? Why does city growth speed up in early development and slow down in later stages? What role does migration play in the process, and do migrants make rational location decisions? Do urban labor markets serve to absorb urban immigrants quickly? Are rural emigrants driven by "push" conditions in the countryside or by "pull" conditions in the cities? Is the Third World "overurbanized"? (425)
T.P. Schultz:
The record of sustained modern growth in real per capita income cannot be accounted for by the accumulation of conventional units of physical capital or by the increased applicaiton of hours of labor per capita.  The source of modern economic growth are sought instead in the changing quality of labor and capital, in the more comprehensive accounting of other inputs, and in change of organization, policy environment, or technology.  ... Research on various aspects of the microeconomic relationshipb etween education and development has expanded rapidly, forging a consensus on questions for study and appropriate methodologies to address these questions. ... Studies across persons, households, farms, and firms have documented, first generally in the United States and then in many low income countries, strong empirical regularities between educational attainment of populations and their productivity and performance in both market and nonmarket (home) production activities.  (544)
Jere Behrman and Anil Deolalikar:
Health and nutrition are important as ends in themselves and often are emphasized as critical components of basic needs in developing countries.  In addition they may be channels through which productivity and distributional goals of developing societies may be pursued effectively if, as is often hypothesized, the productivity of low-income persons in work and in human- capital formation is positively affected by health and nutrition status. (633)
Several things are noteworthy in reviewing the contents and methods of the Handbook -- issues and perspectives that would now be regarded as crucial.

A phrase that does not occur in the volume is "Washington Consensus."  This concept became current in the 1990s after being introduced by John Williamson in 1990 (link).  Here is how Williamson puts his point: "The paper identifies and discusses 10 policy instruments about whose proper deployment Washington can muster a reasonable degree of consensus." He identifies ten policy goals as constituting the Washington Consensus: Fiscal Deficits, Public Expenditure Priorities, Tax Reform, Interest Rates, The Exchange Rate, Trade Policy, Foreign Direct Investment, Privatization, Deregulation, and Property Rights. It is apparent that this list is heavily tilted towards the neo-liberal end of the spectrum.  By contrast, consider the Millenium Goals adopted by the United Nations in 2000 (link): End Hunger, Universal Education, Gender Equity, Child Health, Maternal Health, Combat HIV/AIDS, Environmental Sustainability, Global Partnership.  The Millenium Goals are focused on ending world poverty, while the Washington Consensus is focused on achieving effective market institutions and trading systems globally.  The Handbook isn't a sourcebook or a polemic in support of the neo-liberal agenda; but neither is it emphatic in its treatment of poverty.

Another term that does not occur in the volume is "globalization."  There are discussions of international trade, migration, capital flows, transnational corporations, and credit markets -- important components of contemporary debates about globalization.  But the concept space involved in the idea of economic development had not yet fully highlighted the importance of global interconnectivity.

Third, the Handbook gives virtually no attention to sustainability, resource depletion, and the environment.  These are now regarded as crucial aspects of the challenge of economic development.  Taxation, trade, and governance come in for repeated treatments; but environmental sustainability is not raised as a significant issue.

Finally, the Handbook doesn't give central priority to the issues of poverty alleviation and inequality that were already becoming central for some development economists, including Amartya Sen.  Sen's central ideas of functionings, freedom, and capabilities are expressed in his opening chapter to the volume.  But the bulk of the contributions to the Handbook don't begin with poverty, but rather more specific questions about growth, modernization, trade, and population.  The conceptual shift that Sen's writings would eventually bring to the field had not yet had full effect.

It is also interesting to examine the first and second editions of an important textbook on development economics that was roughly contemporary to the Handbook.  Malcolm Gillis, Dwight Perkins, Michael Roemer, and Donald Snodgrass's Economics of Development was published a few years earlier than the Handbook in 1983 and 1987.  There is a high degree of conceptual and organizational similarity between the two treatments of the economics of development, including topics, approaches, and models and methods.

To get a sense for how the discipline of development economics has shifted since 1988, take a look at the topics and readings included in the course on Economic Development offered by Rohini Pande and Dani Rodrik (link).  Addressing poverty is the central focus in this conceptualization of the field; there is lots of attention to the components of human wellbeing (health, education, nutrition); and the syllabus pays a good deal of attention to issues of institutions and governance within the development process.

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