
Understanding the Mechanisms of Economic Development
Authore(s) : Angus Deaton is Dwight D. Eisenhower || Professor of International Affairs and Professor of Economics and International Affairs at the Woodrow Wilson School of Public and Interna- tional Affairs and in the Department of EconomicsPrinceton UniversityPrincetonNew Jersey. His e-mail address is 〈deaton@princeton.edu〉.
Volume : (13), Issue : 205, January - 2019
Abstract :
Economic development differs from most fields in economics because the study of low-income economies, and of people living in low-income economies, draws on all branches of economics. The particular study of economic growth is perhaps closest to being a field like labor or health economics, but what is currently referred to as development economics is broader, so although my examples involve important issues in economic development, my conclusions apply more broadly to other areas of applied economics. In an earlier paper, I have argued that learning about development requires us to investigate mechanisms (Deaton, 2010a). Finding out about how people in low-income countries can and do escape from poverty is unlikely to come from the empirical evaluation of actual projects or programs, whether through randomized trials or econometric methods that are designed to extract defensible causal inferences, unless such analysis tries to discover why projects work rather than whether they work—however important the latter might be for purposes of auditing. By contrast, investigation, testing, and modification of mechanisms that can be widely applied, at least potentially, allows the integration of disparate empirical findings and comprises a progressive empirical research strategy.
In this paper, I discuss three lines of work that have elucidated mechanisms that are relevant for development: 1) connections between saving and growth; 2) the determinants of commodity prices, which are a key source of income for many developing countries; and 3) some unexpected puzzles that arise in considerin the linkages between income and food consumption. In each case, my discussion illustrates what Cartwright (2007) calls the positivist approach to the hypothetico deductive method. In this approach, mechanisms are proposed, key predictions derived and tested, and if falsified, the mechanisms are rejected or modified. If the predictions of a mechanism are confirmed, if they are sufficiently specific, and if they are hard to explain in other ways, we attach additional credence to the mechanism, albeit provisionally since later evidence may undermine it. Sometimes the falsifications can be repaired by changing supplementary assumptions, and sometimes they involve long steps backwards where the model is abandoned; and often there is disagreement about which is the correct response. But the end result is an accumulation of useful knowledge and understanding.
Keywords :Mechanisms, Economic Development, Simple Observation, Savings ,and Growth.
Article: Download PDF Journal DOI : 301/704
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the Mechanisms of Economic
Vol.I (13), Issue.I 205
Article No : 10045
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References :
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Bosworth, Barry, Gary Burtless, and John Sabelhaus. 1991. “The Decline in Saving: Evidence from Household Surveys.” Brookings Papers on Economic Activity, no. 1, pp, 183–241.
Carroll, Christopher D., and Lawrence H. Summers. 1991. “Consumption Growth... More
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- Modigliani, Franco. 1970. “The Life-Cycle Hypothesis and Intercountry Differences in the Saving Ratio.” In Induction, Growth, and Trade: Essays in Honour of Sir Roy Harrod, ed. W. A. Elltis, M. F. Scott, and J. N. Wolfe, 197–225. Oxford.Oxford University Press.
- Modigliani, Franco, and Richard H. Brumberg. 1954a. “Utility Analysis and the Consumption Function: An Interpretation of the Cross-Section Data.” In Post-Keynesian Economics, ed. Kenneth K. Kurihara, 388–436. New Brunswick: Rutgers University Press.
- Modigliani, Franco, and Richard H. Brumberg. 1954b [1990]. “Utility Analysis and Aggregate Consumption Functions: An Attempt at Integration.” In The Collected Papers of Franco Modigliani: Volume 2: The Life-Cycle Theory of Saving, ed. Andrew Abel, 128–97. Cambridge, MA: MIT Press.
- Parker, Jonathan. 2000. “Spendthrift in America: Two Decades of Decline in the U.S. Saving Rate.” Chap. 6 in NBER Macroeconomics Annual 1999, ed. Ben Bernanke and Julio Rotemberg.
- Paxson, Christina. 1996. “Saving and Growth: Evidence from Micro Data.” European Economic Review, 40(2): 255–88.
- Patnaik, Utsa. 2007. “Neoliberalism and Rural Poverty in India.” Economic and Political Weekly, July 28, pp, 3132–50.
- Powell, Andrew. 1991. “Options to Alleviate the Costs of Uncertainty and Stability: A Case Study of Zambia.” Chap. 3 in Commodities, Futures, and Financial Markets, ed. Louis Phlips. Dordect: Kluwer.
- Rao, C. H. Hanumantha. 2000. “Declining Demand for Foodgrains in Rural India: Causes and Implications.” Economic and Political Weekly, January 3, pp. 201–6.
- Rao, C. H. Hanumantha. 2005. Agriculture, Food Security, Poverty, and Environment: Essays on Post- Reform India. New Delhi: Oxford University Press.
- Schultze, Charles, and Christopher Mackie. 2002. At What Price? Conceptualizing and Measuring Cost-of-Living and Price Indexes. Washington, DC: National Research Counci
- Solow, Robert M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics, 70(1): 65–94.
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- Atkinson, Anthony B. 1969. “On the Times- cale of Economic Models: How Long is the Long Run?” Review of Economic Studies, 36(2): 137–52.
- Bosworth, Barry, Gary Burtless, and John Sabelhaus. 1991. “The Decline in Saving: Evidence from Household Surveys.” Brookings Papers on Economic Activity, no. 1, pp, 183–241.
- Carroll, Christopher D., and Lawrence H. Summers. 1991. “Consumption Growth Parallels Income Growth: Some New Evidence.” Chap. 10 in National Saving and Economic Performance, ed. B. Douglas Bernheim and John B. Shoven. Chicago, IL: Chicago University Press.
- Carroll, Christopher D., and David N. Weil. 19 “Saving and Growth: A Reinterpretation.” Carnegie-Rochester Conference Series on Public Policy, vol. 40, pp. 133–92.
- Cartwright, Nancy. 2007. “Are RCTs the Gold Standard?” BioSocieties, 2(1): 11–20.
- Clark, Gregory, Michael Huberman, and Peter Lindert. 1992. “A British Food Puzzle,1770–1850.” Economic History Review, 48(2): 215–37.
- Deaton, Angus. 1997. Understanding Consumption. Oxford. Clarendon Press.
- Deaton, Angus, 1999. “Commodity Prices and Growth in Africa.” Journal of Economic Perspectives, 13(3): 23–40.
- Deaton, Angus. 2005. “Measuring Poverty in a Growing World (or Measuring Growth in a Poor World). Review of Economics and Statistics, 87(1): 1–19.
- Deaton, Angus. 2007. “Height, Health, and Development.” Proceedings of the National Academies of Science, August 14, 104(33): 13232–37.
- Deaton, Angus. 2010 a. “Instruments, Randomization, and Learning about Development.” Journal of Economic Literature, 48(2): 424–55.
- Deaton, Angus. 2010 b. “Price Indexes, Inequality, and the Measurement of World Poverty.” American Economic Review, 100(1): 5–34.
- Deaton, Angus, and Jean Drèze. 2009. “Food and Nutrition in India: Facts and Interpretations.” Economic and Political Weekly, February 14, pp. 42–65.
- Deaton, Angus, and Alan Heston. Forth- coming. “Understanding PPPs and PPP-based National Accounts.” American Economic Journal: Macroeconomics. http://www.princeton.edu/~deaton /dow nloads/Underst anding_ PPPs _complete _with_abstract_14nov08.pdf.
- Deaton, Angus, and Guy Laroque. 1992. “On the Behavior of Commodity Prices.” Review of Economic Studies, 59(1): 1–23.
- Deaton, Angus, and Guy Laroque. 1996. “Competitive Storage and Commodity Price Dynamics.” Journal of Political Economy, 104(5):896–923.
- Deaton, Angus, and Christina Paxson. 1998. “Economies of Scale, Household Size, and the Demand for Food.” Journal of Political Economy,106(5): 897–930.
- Deaton, Angus, and Christina Paxson. 2000. “Growth and Saving among Individuals and Households.” Review of Economics and Statistics, 82(2): 212–25.
- Du, Shufa, Bing Lu, Fenying Zhai, and Barry M. Popkin. 2002. “A New Stage in the Nutrition Transition in China.” Public Health Nutrition, 5(1A): 169–74.
- Dvir, Eyal, and Kenneth S. Rogoff. 2009. “Three Epochs of Oil.” NBER Working Paper 14927.
- Gourinchas, Pierre-Olivier, and Jonathan A. Parker. 2002. “Consumption over the Life Cycle.” Econometrica, 70(1): 47–89.
- Gustafson, Robert L. 1958. Carryover Levels for Grains. Technical Bulletin 1178, U.S. Department of Agriculture.
- Houthakker, Hendrik S. 1965. “On Some Determinants of Saving in Developed and Underdeveloped Countries.” Chap. 10 in Problems in Economic Development, ed. E. A. G. Robinson. London: Macmillan.
- Hsieh, Chang-tai, and Peter J. K lenow. 2007. “Relative Prices and Relative Prosperity.” American Economic Review, 97(3): 562–85.
- Issawi, Charles, ed. 1966. The Economic History of the Middle East 1800–1914: A Book of Readings. Chicago: Chicago University Press.
- Johnson, Simon, William Larson, Chris Papageorgiou, and Arvind Subramanian. 2009. “Is Newer Better? Penn World Table Revisions and Their Impact on Growth Estimates.” NBER Working Paper 15455.
- Kotlikoff, Laurence, and Lawrence H. Summers. 1981. “The Role of Intergenerational Transfers in Aggregate Capital Accumulation.” Journal of Political Economy, 89(4): 706–32.
- Kuznets, Simon. 1976. “Demographic Aspects of the Size Distribution of Income: An Exploratory Essay.” Economic Development and Cultural Change, 25(1): 1–94.
- Lewis, Arthur. 1954. “Economic Development with Unlimited Supplies of Labor.” Manchester School of Economics and Social Studies, 22(May), 139–91.
- Modigliani, Franco. 1966. “The Life-Cycle Hypothesis of Saving, the Demand for Wealth, and the Supply of Capital. Social Research, 33(2):160–217.
- Modigliani, Franco. 1970. “The Life-Cycle Hypothesis and Intercountry Differences in the Saving Ratio.” In Induction, Growth, and Trade: Essays in Honour of Sir Roy Harrod, ed. W. A. Elltis, M. F. Scott, and J. N. Wolfe, 197–225. Oxford.Oxford University Press.
- Modigliani, Franco, and Richard H. Brumberg. 1954a. “Utility Analysis and the Consumption Function: An Interpretation of the Cross-Section Data.” In Post-Keynesian Economics, ed. Kenneth K. Kurihara, 388–436. New Brunswick: Rutgers University Press.
- Modigliani, Franco, and Richard H. Brumberg. 1954b [1990]. “Utility Analysis and Aggregate Consumption Functions: An Attempt at Integration.” In The Collected Papers of Franco Modigliani: Volume 2: The Life-Cycle Theory of Saving, ed. Andrew Abel, 128–97. Cambridge, MA: MIT Press.
- Parker, Jonathan. 2000. “Spendthrift in America: Two Decades of Decline in the U.S. Saving Rate.” Chap. 6 in NBER Macroeconomics Annual 1999, ed. Ben Bernanke and Julio Rotemberg.
- Paxson, Christina. 1996. “Saving and Growth: Evidence from Micro Data.” European Economic Review, 40(2): 255–88.
- Patnaik, Utsa. 2007. “Neoliberalism and Rural Poverty in India.” Economic and Political Weekly, July 28, pp, 3132–50.
- Powell, Andrew. 1991. “Options to Alleviate the Costs of Uncertainty and Stability: A Case Study of Zambia.” Chap. 3 in Commodities, Futures, and Financial Markets, ed. Louis Phlips. Dordect: Kluwer.
- Rao, C. H. Hanumantha. 2000. “Declining Demand for Foodgrains in Rural India: Causes and Implications.” Economic and Political Weekly, January 3, pp. 201–6.
- Rao, C. H. Hanumantha. 2005. Agriculture, Food Security, Poverty, and Environment: Essays on Post- Reform India. New Delhi: Oxford University Press.
- Schultze, Charles, and Christopher Mackie. 2002. At What Price? Conceptualizing and Measuring Cost-of-Living and Price Indexes. Washington, DC: National Research Counci
- Solow, Robert M. 1956. “A Contribution to the Theory of Economic Growth.” Quarterly Journal of Economics, 70(1): 65–94.