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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

Cite This Article:

the Mechanisms of Economic

Vol.I (13), Issue.I 205

Article No : 10045

Number of Downloads : 102

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