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Instruments, randomization, and learning about development

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  • Angus Deaton

    (Princeton University)

Abstract

There is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development. There is skepticism about the ability of econometric analysis to resolve these issues, or of development agencies to learn from their own experience. In response, there is increasing use in development economics of randomized controlled trials (RCTs) to accumulate credible knowledge of what works, without over-reliance on questionable theory or statistical methods. When RCTs are not possible, the proponents of these methods advocate quasi-randomization through instrumental variable (IV) techniques or natural experiments. I argue that many of these applications are unlikely to recover quantities that are useful for policy or understanding: two key issues are the misunderstanding of exogeneity, and the handling of heterogeneity. I illustrate from the literature on aid and growth. Actual randomization faces similar problems as does quasi-randomization, notwithstanding rhetoric to the contrary. I argue that experiments have no special ability to produce more credible knowledge than other methods, and that actual experiments are frequently subject to practical problems that undermine any claims to statistical or epistemic superiority. I illustrate using prominent experiments in development and elsewhere. As with IV methods, RCT-based evaluation of projects, without guidance from an understanding of underlying mechanisms, is unlikely to lead to scientific progress in the understanding of economic development. I welcome recent trends in development experimentation away from the evaluation of projects and towards the evaluation of theoretical mechanisms.

Suggested Citation

  • Angus Deaton, 2010. "Instruments, randomization, and learning about development," Working Papers 1224, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  • Handle: RePEc:pri:rpdevs:deaton_instruments_randomization_learning_all_04april_2010.pdf
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    More about this item

    Keywords

    Randomized controlled trials; mechanisms; instrumental variables; development; foreign aid; growth; poverty reduction;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • I32 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Measurement and Analysis of Poverty

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