Look how far we have come

Abstract

Abstract:Economics has changed enormously since Professor Ha-Joon Chang burst onto the scene in the early 1990s. His critiques of mainstream economics are far more applicable to the discipline at that time than they are now. Whatever the shortcomings of the current literature on institutions and development, progress is not being held back by conceptual blinders imposed by economic orthodoxy. Game theory and behavioral economics have enriched the menu of models acceptable in the professional journals. More important, empirical standards have greatly advanced. Behavioral models are being confronted with computerized games and even with in-the-field experiments, especially in poor countries where recruiting experimental subjects is cheaper. The recent literature does not merely undermine traditional assumptions; it offers parsimonious interpretations that help us to understand the economy and the polity better than before.

Reply to the comments on ‘Institutions and Economic Development: Theory, Policy and History’

“…The most flawed but surprisingly frequent misunderstanding of my target article is that I say institutions do not matter for economic growth and development – Peter Boettke and Alexander Fink (2011), Maria Bruower (2011), Christopher Clague (2011), Eelke de Jong (2011), Arielle John and Virgil Storr (2011) and Philip Keefer (2011). For example, John and Storr argue that, in my article, ‘the conclusion that institutions (in particular property, contract and the rule of law) are unnecessary for growth has not been convincingly argued [italics added]’ (John and Storr, 2011: 5).…”

“…Some of the commentators have criticized me for attacking a ghost from the past, as I fail to recognize the more recent theoretical advances in orthodox institutional economics. Christopher Clague (2011), Jeffrey Nugent (2011) and Mary Shirley (2011) take this line of argument.…”

“…For another example, Clague (2011) and Nugent (2011) argue that my criticisms are unfair because I do not fully take into account the more recent developments in orthodox institutional economics, like game theory, behavioural economics, computerized games and experimental economics.…”

“…For a concrete example, take the case of experimental economics, whose advance Clague (2011) thinks has significantly advanced our empirical understanding of the role of institutions. I agree that experimental economics has produced some very interesting empirical findings and important lessons for policy fine-tuning, but I wonder how much of these can be said to be real advances in our knowledge in the study of institutions .…”

“…I agree that experimental economics has produced some very interesting empirical findings and important lessons for policy fine-tuning, but I wonder how much of these can be said to be real advances in our knowledge in the study of institutions . Most of experimental economics is not really about institutions – it is simply trying to identify the impacts of different designs in policies (e.g., microcredit, conditional cash transfer, immunization, fertilizer use, educational schemes) under more control (the works by Abhijit Duflo and Esther Banerjee, cited by Clague (2011), are best examples in this regard). Even when the research concerns institutions, like the caste system in India, it is not clear how many new insights we have gained from experiments by economists.…”