Economics of poverty: On Economic Sciences' Nobel

The Nobel laureates made development economics more relevant to policy making

October 15, 2019 12:02 am | Updated 01:10 am IST

Development economics just got a boost with the award of the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to three economists who have worked, and are still working, to understand and alleviate poverty — Abhijit Banerjee and Esther Duflo of Massachusetts Institute of Technology, and Michael Kremer of Harvard University . This is only the second time a woman has bagged the prestigious award, popularly called the Economics Nobel, and it is a first for a husband-wife duo to win in this discipline — Mr. Banerjee is married to Ms. Duflo. In the words of the Royal Swedish Academy of Sciences, the experiment-based approach of the three laureates has transformed development economics and turned it into a “flourishing field of research”. One of their studies resulted in benefiting 5 million children in India through programmes of remedial tutoring in schools. The three adopted an evidence-based approach to apply theory to real-life situations using randomised trials and assessing the outcomes. The effort was to understand the impact of interventions to achieve desirable outcomes. The approach is derived from the concept of clinical trials in the pharmaceuticals industry.

 

If this sounds like gobbledygook, the experiment that Mr. Banerjee and Ms. Duflo carried out in Rajasthan some years ago would explain the concept better. Despite immunisation being free, women were not bringing in their children for the vaccination shot. The two MIT economists decided to give a bag of pulses free to women who brought their babies for vaccination. Word soon spread and the rate of immunisation shot up in the region. Another experiment they did was in Mumbai and Vadodara to understand learning outcomes in the field of education. Was it lack of access to textbooks or hunger that caused poor learning outcomes? Through field studies, Mr. Banerjee and Ms. Duflo established that the problem is that teaching is not adapted to the needs of the students. Learning outcomes improved in schools that were provided with teaching assistants to support students with special needs. The importance of the work being done by the three laureates cannot be overemphasised. Governments across the world, including in India, spend big money on social schemes without the vaguest of ideas on whether their objectives have been met. The field-work based approach that these economists have perfected has revolutionised the field of development economics and made it more relevant in policy making. The government would do well to borrow from the research of these laureates to understand the impact of its several schemes, and where necessary, tweak them to derive maximum benefit for the thousands of crores of rupees that it spends.

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