Abstract
The “new development economics” (also called behavioral development economics) consists of microeconomic experimentation based on behavioral economics and randomized controlled trials. This approach would illuminate the close relationships between preferences, culture, and institutions and point to new political opportunities. This paper describes and analyzes the new development economics’s main components and argues that the new development economics is just like the old development economics in terms of its central assumptions, objectives, and recommendations. Despite the growing recognition that social, cultural, and institutional factors profoundly affect decision-making, old and new development economists generally lean toward the extreme reductionism of the neoclassical paradigm. It is observed that research on the essence of economic development has been neglected or treated inadequately in the school’s literature. It is suggested that the findings of the Austrian theory of dynamic efficiency, based on human action’s creative and entrepreneurial feature, may allow the development economics to overcome its analytical challenges.
Highlights
The “new development economics” consists of microeconomic experimentation based on behavioral economics and randomized controlled trials
The progress of underdeveloped countries depends on the supply of capital available to build the necessary infrastructure for industrialization and the rapid modernization of the economy
In the 1990s and 2000s, a new way of conceiving development interventions appeared as a response to the failure of what Easterly (2014) calls “big push reasoning,” the legend that the poorest countries are stuck in a poverty trap from which they cannot emerge without an aid-financed big push
Summary
In the 1940s, 1950s, and 1960s, economic thinking about economic development was confined mainly to the United Nations’s (UN) international organizations. Poverty was the result of vicious circles caused by the interaction of various economic phenomena on the supply side (low per capita income, low propensity to save, insufficient capital, and low productivity) and on the demand side (low purchasing power, insufficient market size in the modern sector, lack of investment, and low average productivity). Rosenstein-Rodan’s poverty trap thesis suggested a widening inequality gap between developed (rich) and underdeveloped (poor) countries, based on enormous differences in these two distinct groups’ per capita incomes (Prebisch 1950). Economists of the early development theory shared a commitment to planning and the conviction that economic problems would yield to the actions of benevolent states endowed with sufficient supplies of capital and armed with good economic analysis (Leys 1996) They designed development plans for newly independent countries and the not yet independent African colonies based on raising rural productivity and transferring underutilized labor out of agriculture into industry. (2002, 88) believes that the record of the “old” development economics is one of failure: “The efforts that we as development economists, aid donors, and policymakers have made have not worked.”
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