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Could development economics be more useful?

Noah Smith tackles a provocative claim from economist Jesús Fernández-Villaverde: that the field of development economics has abandoned the "big questions" of why some nations industrialize and others stagnate. Smith doesn't just summarize the critique; he dismantles the assumption that the academic community is ignoring the macro-level drivers of wealth, arguing instead that the discipline is bogged down by the inherent difficulty of proving historical causality. For a listener trying to understand why global inequality persists despite decades of research, this piece offers a necessary reality check on the limits of economic science.

The "Acne vs. Aging" Dilemma

Smith begins by contextualizing the frustration. He notes that Jesús Fernández-Villaverde (JFV) argues the profession has "misallocated its own intellectual capital on a pretty heroic scale" by focusing on small-scale randomized controlled trials rather than the grand puzzle of industrialization. Smith acknowledges the emotional weight of this critique. It is easy to feel that studying microfinance impact evaluations is trivial when the world is starving for answers on why South Korea succeeded while Bolivia failed.

Could development economics be more useful?

However, Smith pushes back with a compelling analogy. He suggests that demanding economists solve the mystery of national growth is like yelling at doctors to stop treating acne and only work on curing aging. "It doesn't make a lot of sense to yell at doctors to all stop studying acne and only work on aging," Smith writes, noting that while aging is the bigger problem, acne is what is actually solvable with current tools. This framing is effective because it shifts the blame from the researchers' choices to the limitations of their methodology.

"People keep saying that the recent Nobelists 'studied global poverty.' This is exactly wrong. They made a commitment to [the RCT] method, not a subject, and their commitment to [that] method prevented them from studying global poverty."

Smith cites Lant Pritchett to reinforce this point, highlighting that poverty programs account for less than 1 percent of the variation in poverty. The real driver, as Smith emphasizes, is economic growth, which cannot be studied through a randomized trial. "You can't do an RCT to study economic growth," he writes. This is a crucial distinction for the listener to grasp: the tools that work for evaluating a specific school lunch program are useless for explaining the rise of an industrial superpower.

Critics might argue that this defense lets the field off the hook too easily, suggesting that the "acne" of micro-interventions is merely a safe harbor for avoiding political risk. Yet, Smith's data suggests the problem isn't a lack of interest in big ideas, but a lack of consensus on how to test them.

The Tower of Babel in Development Theory

The core of Smith's argument is that the "big ideas" are not missing; they are abundant, contradictory, and fiercely defended. He lists a dizzying array of theories: institutions, geography, human capital, industrialism, culture, and state capacity. Each has a Nobel laureate or a blockbuster book attached to it. "There are plenty of high-profile academic papers laying out variants of each one of these theories," Smith notes, pointing out that the field is actually crowded, not empty.

He challenges the notion that the field has "given up" on these questions. "I'm not sure what 'field' JFV is referring to when he says 'The current field has largely given up' on the question of comparative development," Smith writes. He points out that even within development economics, only about 19% of papers use randomized controlled trials, meaning the vast majority of research is already grappling with broader structural issues.

"Basically, lots of development economists run cross-country regressions, and they always lead to vigorous arguments about what the regressions mean and whether the models were appropriate."

Smith uses the example of South Korea versus Bolivia to illustrate why these theories remain unresolved. The divergence between the two nations is "startling," yet the differences are so multifaceted—education, geography, ethnic homogeneity, military threats, and trade relationships—that isolating a single cause is nearly impossible. He draws a parallel to the historical context of import substitution industrialization, noting that while South Korea's export-led model succeeded, the "flying geese" theory of sequential growth also played a role, making a clean scientific verdict elusive.

"Depending on which Big Theory you believe, you could attribute Korea's relative success to any combination of these natural advantages and policy choices."

This is the piece's most insightful moment. Smith admits that while we can tell a good story about Poland's or Korea's success, "it's not a scientific explanation." The inability to run a controlled experiment on a nation means that every theory can be defended with a different set of historical anecdotes. This isn't a failure of effort; it's a failure of the scientific method when applied to unique historical events.

The Limits of Structural Models

Smith concludes by addressing the alternative to RCTs: structural models. He describes them as "toothbrushes"—everyone has one, but no one wants to use anyone else's. This metaphor perfectly captures the fragmentation of the field. Because there is no agreed-upon "correct" model for how economies grow, researchers retreat into their own silos, each building a complex theoretical framework that only they can fully trust.

"There are a va[riety of] structural models... but this approach has even more problems."

The implication is stark: until economists can agree on a methodology that rivals the rigor of an RCT but applies to macro-level history, the "big questions" will remain a matter of ideology and storytelling rather than settled science. Smith suggests that the frustration JFV feels is real, but the diagnosis is wrong. The field isn't ignoring the big questions; it's simply hitting a wall of complexity that no amount of data can currently clear.

"So I'm not sure what JFV is talking about here. He's an economist I like and respect, but his perception of the state of research on the big questions of development doesn't seem very accurate."

Bottom Line

Smith's strongest move is reframing the debate from "neglect" to "methodological impossibility," forcing the listener to confront the limits of what economics can actually prove about national destiny. The argument's vulnerability lies in its potential to excuse a lack of progress; just because a problem is hard doesn't mean the field shouldn't try harder to bridge the gap between micro-evidence and macro-theory. Readers should watch for how the next generation of economists attempts to merge these disparate theories into a unified framework, rather than continuing to fight over which single theory holds the key.

Deep Dives

Explore these related deep dives:

  • Import substitution industrialization

    This specific economic strategy, often associated with Latin American nations like Bolivia, provides the historical counterpoint to the East Asian export-led growth model that the article argues is the true key to development.

  • Asia

    This book by Chalmers Johnson is the seminal text on the developmental state model in Japan and South Korea, offering the concrete historical case study of industrial policy that the article claims modern development economics has abandoned.

  • Randomized controlled trial

    While the method is famous, understanding its specific statistical limitations regarding macro-level phenomena like national economic growth explains why the article's critics argue it is ill-suited for answering the 'big questions' of development.

Sources

Could development economics be more useful?

by Noah Smith · Noahpinion · Read full article

The above image is from a recent tweet by University of Pennsylvania economist Jesús Fernández-Villaverde (henceforth referred to as “JFV”), in which he criticizes the field of development economics for ignoring the big questions. He writes:

A fundamental lesson from my posts these last two weeks on modernization, industrial policy, and development is that development economics should be about understanding why South Korea got rich but Bolivia did not. The current field has largely given up on that question. Sharply identified RCTs on small micro programs are a fine way to publish in the AER and get tenure at a fancy university, but a profession that knows everything about microfinance impact evaluations and almost nothing about industrialization has misallocated its own intellectual capital on a pretty heroic scale.

JFV’s critique of modern development econ isn’t new. Eminent economists have been complaining about randomized controlled trials for years. I wrote about this back in 2020:

In 2019, Lant Pritchett — then at Oxford — made an argument very similar to JFV’s when he criticized that year’s Nobel winners:

People keep saying that the recent Nobelists “studied global poverty.” This is exactly wrong. They made a commitment to [the RCT] method, not a subject, and their commitment to [that] method prevented them from studying global poverty…

[P]overty programs…account for less than 1 percent of total variation in poverty…[C]hanges in [actual] poverty…are overwhelming associated with growth in median income/consumption…[V]ariation in the size and efficacy of poverty programs had little or nothing to do with poverty reduction…So what the Nobelists really did was…using a particular method to study whatever could be studied with that method in poor countries (lots of which were “interventions” by NGOs at very small scale), knowing that this…severely limited their ability to study…global poverty.

In other words, what really beats poverty is economic growth, and you can’t do an RCT to study economic growth. This is basically a slightly broader version of what JFV says. JFV says that industrialization is the key, and industrialization is how almost every rich country got rich.

So basically, the idea here is that if you’re a development economist, and you’re not asking “How can countries industrialize?”, you’re being kind of useless.

The counterargument here — which I made in 2020 and which a number of economists made in response to JFV’s post — is that it’s better to study something knowable than to study ...