1963-2018 - 55 years of Research for Social Change

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Back | Programme Area: Special Events (2000 - 2009)

Thoughts and Proposals on Reviving Development Economics (Draft)

There are three main factors that caused the decline of development economics, especially during the eighties and nineties. These reasons are:
1. As explained well in the other papers in this conference, the hegemony of the neoclassical non-interventionist and monetarist/rational expectations schools in mainstream economics during the seventies and eighties succeeded in removing from the mainstream literature developmental and interventionist approaches to economics. This included the almost successful attempt to kill Keynesian theory and to convert it into a theoretical oddity.

2. The core of development economic theories embodied in a) Lewis’, Ranis-Fei’s and the dependency theorists’ debates on the dual economy, b) works on ‘big push’, ‘balanced and unbalanced growth’ and ‘import-substitution strategy’ by Rosenstein-Rodan, Nurkse, Hirschman, etc. – all did not employ the ‘elegant’ ‘rational’, optimizing and comparative statics framework and methodology of neoclassical economics. It is interesting to note that the ‘big push’ and ‘learning by doing’ (or ‘picking winners’ in the technology and knowledge-intensive sectors) theories were able to become fashionable when presented in the neoclassical style of comparative dynamics in the endogenous growth models of Lucas, Romer, Schlifer and Vishny, etc. The methodology mattered, but we must remember that the historical conditions that brought about the rise of the endogenous growth models in the eighties and nineties precisely involved the lack of empirical validity of the traditional neoclassical growth model, especially with the rise of the East Asian ‘miracles’. (They had to turn to the disgraced theories of development economics to partly find the right answer.) Another point is that the ascendancy and dominance now of new Keynesian and new institutional theories that allow ‘market failures’, institutions and governance structures to enter the mainstream is their use of neoclassical models and tools as well as the increasingly fashionable game theory approach.

3. A third reason which we should not ignore is the entry in the sixties and seventies of so many other topics in the realm of development economics, which merely duplicated existing fields in economics but applying them in a ‘Third World’ context. Areas and topics in the fiscal, monetary, exchange rate arenas, labor economics, international trade, agricultural economics, education and social sector (population, health, etc.) – just take a quick look at the contents of Todaro’s textbook whatever edition – were all included as part of ‘development economics’. This ‘borrow from mainstream theory and apply to a Third World context’ scheme, plus the lack of an elegant neoclassical model (described in no. 2 above), naturally relegated development economics to a status of ‘soft’ economics indistinguishable from sociology, psychology and other social sciences, and unbefitting of true ‘hard-core’ scientific and analytical (neoclassical) economics.

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