Development economics is split between macro- and micro-development economists. The former focus on economic growth and tend to analyze economy-wide policies such as trade, fiscal, and currency policies. Think Anne Krueger, Jeff Sachs, Bill Easterly, Paul Collier. The latter focus on individual-level outcomes and analyze microfinance, education, health and other social policies. Think Angus Deaton, Mark Rosenzweig, Michael Kremer, or Esther Duflo. The first group relies on cross-country econometrics or analytical country studies. The second relies increasingly on randomized field experiments. Ostensibly, both groups share the same objective: achieving sustainable improvement in standards of living of the poor. But the way they go about it seems so different as to make them look like members of entirely different disciplines.
My latest paper argues that there is both good and bad news on this front:
The good news is that there is substantial convergence in the policy mindset exhibited by micro evaluation enthusiasts, on the one hand, and growth diagnosticians, on the other. The emerging “consensus” revolves not around a specific list of policies, but around how one does development policy. In fact, practitioners of this “new” development economics—whether of the “macro” type or “micro” type—tend to be suspicious of claims to ex ante knowledge about what works and what does not work. The answer is neither the Washington Consensus nor any specific set of initiatives in health or education. What is required instead is recognition of the contextual nature of policy solutions. Relative ignorance calls for an approach that is explicitly experimental, and which is carried out using the tools of diagnostics and evaluation. Old dichotomies between states and markets play little role in this worldview and pragmatism reigns. The proof of the pudding is in the eating: if something works, it is worth doing.
This convergence has remained largely hidden from view, because the analytical and empirical tools used by economists at the macro and micro end of things—growth economists versus social policy economists—tend to be quite different. But I will make the case that there is indeed such a convergence, that it is a significant departure from the approaches that dominated thinking about development policy until a decade or so ago, and that it represents a significant advance over the previous generation of research.
The bad news is that there has been an accentuation of the methodological divergence between macro-development economists and micro-development economists, which threatens to overshadow the convergence on policy. In particular, the randomized field trials revolution led by researchers in and around the MIT Poverty Action Lab (Banerjee 2007, Duflo 2006, Duflo, Glennerster, and Kremer 2006) has greatly enriched the micro end of the field, while creating bigger barriers between the two camps. This is not just because randomization is rarely possible with the policies—such as trade, monetary, and fiscal—that macro-development economists study. More importantly, it is because of the raising of the stakes with regard to what counts as “admissible” evidence in development. The “randomistas” (as Deaton  has called them) tend to think that credible evidence can be generated only with randomized field trials (or when nature cooperates by providing the opportunity of a “natural” experiment)....
In fact, the micro experimentalists tend to overstate how much we learn from randomized trials and underestimate how much we learn from other types of evidence.
The question we need to pose of any piece of research is the Bayesian one: does the finding change our priors on the question we are interested in? Randomized evaluations do pretty well when they are targeted closely at the policy change under consideration, but less so when they require considerable extrapolation. In the latter case, evidence from randomized field experiments need not be more informative than other types of evidence which may have less airtight causal identification but are stronger on external validity (because of broader geographical or temporal coverage). In practice internal validity—just like external validity—is not an either-or matter; some studies do better than others on this score than others, and deserve more of our attention on that account. But this preference has to be tempered with a consideration also of external validity. The bottom line is that randomized evaluations do not deserve monopoly rights—or even necessarily pride of place—in moving our priors on most of the important questions in development economics.
But the paper is not meant to be a critique of randomized evaluations, which have greatly enriched our empirical toolkit. It is instead a plea for not letting prevailing methodological differences overshadow the larger convergence. My purpose is to get macro-development economists and micro-development economists to see that they have much more in common than they realize.
Case in point: the greatest development success of our time, China. As I review and document in my paper, the experimentalist mind set was deeply ingrained in China’s approach to reform. Some of the experiments that proved extremely successful were: the household responsibility system, dual-track pricing, township-and-village enterprises, and special economic zones. Of course, the informal evaluations to which these experiments got subjected would not satisfy the standards of the MIT Poverty Action Lab. “Seeing whether something works” is hardly as rigorous as randomized evaluations. But it would be silly to claim that Chinese policy makers did not learn something from their experiments.
The China example is important because it illustrates, in a vastly significant real-world instance, how the experimental approach to policy reform need not remain limited in scope and can extend into the domain of national policies. China, of course, is a special case in many ways. The point is not that all countries can adopt the specific type of experimentation ... that China has used to such great effect. But the mindset exhibited in China’s reform process is general and transferable—and it differs greatly from the mindset behind the presumptive strategies outlined above. It is perfectly illustrative of the potential convergence between the ideas of micro-development economists and macro-development economists. One would hope that the response of micro experimentalists to China’s experimentalism is not to say “but this is worthless, none of the experiments were evaluated rigorously through randomization,” but to say instead: “great, here is how our ideas can make the world a better place not just one school or health district at a time.”
So my bottom line is that the practice of development economics is at the cusp of a significant opportunity. We have the prospect not only of a re-unification of the field, long divided between macro- and micro-development economists, but also of a progression from presumptive approaches with ready-made universal recipes to diagnostic, contextual approaches based on experimentation and policy innovation. If carried to fruition, this transformation would represent an important advance in how development policy is carried out.
But we need more work. Macro-development economists will have to recognize more explicitly the distinct advantages of the experimental approach and a greater number among them will have to adopt the policy mindset of the randomized evaluation enthusiasts. As the Chinese example illustrates, extending the experimental mindset to the domain of economy-wide reforms is not just possible, it has already been practiced with resounding success in the most important development experience of our generation. Micro-development economists, for their part, will have to recognize that one can learn from diverse types of evidence, and that while randomized evaluations are a tremendously useful addition to the empirical toolkit, the utility of the evidence they yield is restricted by the narrow and limited scope of their application.
In the end, macro-development economists have to be humbler about what they already know, and micro-development economists humbler about what they can learn.