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The 2019 Nobel Prize in Economics


The Royal Swedish Academy of Sciences has announced that the 2019 Nobel Prize in Economic Sciences will be awarded to three researchers for their work in reducing global poverty: Abhijit Banerjee (Massachusetts Institute of Technology, MIT), Esther Duflo (MIT), and Michael Kremer (Harvard). Notably, Dr Duflo is the youngest-ever economics laureate and only the second woman.

The Royal Academy noted their work has ‘dramatically improved our ability to fight poverty’ and transformed the field of development economics. The laureates have made significant contributions spanning research methods, empirical findings, and public policy.

Methods

In the mid-1990s, Dr Kremer pioneered the use of field experiments to better understand causal effects in development economics. Unlike other research methods, experiments enable researchers to go beyond observations of past events and to test specific hypotheses, such as the effectiveness of a particular policy measure or intervention. Field experiments, as distinct from laboratory experiments, are conducted in developing countries and communities, and enable researchers to determine the real-world effects of a policy measure. Drs Banerjee and Duflo, often in collaboration with Dr Kremer, built on this work and dramatically expanded the scope and usefulness of field experiments.

The most common type of experiment is a randomised controlled trial (RCT), which is also used in medical research and other scientific fields. In an RCT, similar groups (such as individuals, households, or classes) are subject to different policy interventions so their impacts can be measured.

For example, Dr Kremer conducted a series of RCT studies in western Kenya to evaluate the effectiveness of interventions in education, including additional inputs (such as textbooks and flip charts), health interventions (such as deworming and free school meals), and providing financial incentives to teachers. These studies broadly demonstrated that each intervention had little to no long-term impact. Later work by Drs Banerjee and Duflo in India demonstrated that teaching assistance targeted at underperforming students was a far more effective intervention. The Government of India has adopted this finding and more than five million Indian children have since benefited from remedial tutoring.

Each has also made contributions towards understanding experimental validity, including questions of internal validity (whether an experiment is genuinely establishing causation) and external validity (whether a causal finding can be applied in other contexts). These contributions laid the foundations for field experiments to produce useful insights for policymakers.

Empirical findings

The Swedish Academy has published scientific background to the 2019 prize that identifies several areas of development economics in which the laureates have made significant contributions, including education, health, behaviour, gender and politics, and credit.

One example of this work was conducted between 2004 and 2007 in India. In developing countries, poor service quality can be a deterrent to the immunisation of children. One particular issue—absenteeism among healthcare workers—led Drs Banerjee and Duflo and their colleagues to undertake an RCT of providing better service.

The study focused on an area with around 134 villages and 2,000 children that exhibited low immunisation rates (2 per cent of children between one and two years old) and chronic absenteeism. The study involved three intervention groups: one group had fully staffed mobile vaccination clinics, another group had the clinics plus immunisation incentives (one kilogram of lentils worth US$1), and the final group experienced no intervention. The study found that immunisation rates rose to 18 per cent in the first group, to 39 per cent in the second group, and to 6 per cent in the control group. Due to the large fixed costs of operating immunisation clinics, providing financial incentives was also the most cost-effective intervention (almost half the cost per immunised child of the first group).

This example demonstrates how field experiments enable policy interventions to be evaluated before they are rolled out on a larger scale, ensuring scarce government resources are channelled into the most effective policy measures. More information about this study is available online.

Public policy

Drs Banerjee and Duflo, along with Dr Sendhil Mullainathan, established the Poverty Action Lab (now known as J-PAL) at MIT in 2003. J-PAL supports the use of field experiments by academics, governments, and non-government organisations to evaluate the impact of policy interventions, as well as promoting successful policy measures and building capacity in developing countries. The Swedish Academy cited a
J-PAL estimate that ‘more than 400 million people have been reached by programs that were scaled up after having been evaluated by researchers associated with J-PAL’.

Through the Australian aid program, the Australian Government provided $16.5 million in 2012 to support the establishment of J-PAL Southeast Asia at the University of Indonesia, which conducts field experiments in support of evidence-based development policy. The Department of Foreign Affairs and Trade has collaborated with J-PAL across a number of projects, including a household finance project in the Philippines, a microfinance project in India, and a famine alleviation project in Bangladesh. The Australian Research Council has also collaborated with J-PAL in the past.

Further reading

More information about the prize is available on the Royal Academy’s popular information and scientific background webpages. The J-PAL website also has a wealth of relevant resources.  

Parliamentarians are able to access the following resources in the Library’s collection:

  • A Banerjee, Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty
  • A Leigh, Randomistas: How Radical Researchers Changed our World (see Chapter 7, ‘Valuable experiments in poor countries’)
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