Thread by @Noahpinion

1/A follow-up thread on Nobel Prizes and Big Questions.

Branko asks: Why don't we award prizes for economists who work on the incredibly important question of how China grew so fast?

It's a very good question...

https://twitter.com/BrankoMilan/status/1316573079074680834

2/Why DID China develop?

Many people who read the news think that the answer is perfectly obvious. Unfortunately, these "perfectly obvious" answers tend to be quite lacking:

https://twitter.com/SnoozeButtonBen/status/1316471507812581376

3/Sure, lots of politicians yell about China playing unfair on trade. But does that mean restricting imports makes you grow fast? LOL, no.

Lots of countries restrict imports. Most do not exhibit China-like development.

blogs.lse.ac.uk/africaatlse/20…

4/More broadly, in the mid-20th century, lots of countries did try a strategy called "import substitution industrialization".

The results were not as terrible as advertised, but they weren't great. They didn't produce a lot of Chinas.

rodrik.typepad.com/dani_rodriks_w…

5/OK, so what do we really know about why countries develop?

It IS a huge important old ongoing area of research. Many people work on it. A number of Econ Nobel prizes have been given to people who work on it.

6/For example, in 1987, Robert Solow won for his growth model. While the Solow Model doesn't fully answer the question of why countries develop, it DOES explain why simply saving a lot and building roads and factories won't get you all the way there.

nobelprize.org/prizes/economi…

7/Paul Krugman followed up on the model's predictions, demonstrating that high savings rates and capital accumulation could lift countries like the USSR into the middle rank of development, but not to the top.

pdfs.semanticscholar.org/82fe/231630d3f…

8/Krugman, who won the prize in 2008, helped create a model of economic geography, in which development spreads from region to region. Countries can boost their chances of being the next place to develop, but ultimately it's a one by one process.

amazon.com/Spatial-Econom…

9/This is pretty consistent with the "flying geese" model of industrial development that was long popular with Japanese economists (note that one of Krugman's co-authors, Masahisa Fujita, is Japanese).

sciencedirect.com/science/articl…

10/But there are those who believe that there's a standard set of industrial policies that a country can use to boost itself out of poverty. For example, author Joe Studwell laid out a three-step process in his excellent book "How Asia Works":

amazon.com/How-Asia-Works…

11/One of Studwell's main ideas is that land reform -- taking farms away from big landlords and giving it to small tenant farmers -- is a way to kickstart development.

Amartya Sen, who won the Econ Nobel in 1998, was among the first to develop this idea.

growthecon.com/assets/papers/…

12/Studwell's second big idea -- that countries can use export promotion to raise their companies' productivity -- isn't clearly connected to any Econ Nobel winner that I know of. But I can see some connection to the research of @rodrikdani:

drodrik.scholar.harvard.edu/files/dani-rod…

13/It's also somewhat related to the work of 1979 Econ Nobel winner Arthur Lewis, who emphasized the importance of moving workers from agriculture to industry (as China has notably done):

nobelprize.org/prizes/economi…

14/Another idea (which Studwell doesn't emphasize but which many believe) is that human capital -- a capable, well-educated populace -- is key to development.

This was emphasized by Theodore Schultz, who shared the 1979 Econ Nobel with Lewis:

nobelprize.org/prizes/economi…

15/Yet another common idea is that institutions (e.g. property rights) are key to development. This is central to the ideas of Robert Fogel and Douglass North, who won the Econ Nobel in 1993.

nobelprize.org/prizes/economi…

16/So the answer to the question of "Why did China develop?" is:

1. We don't really know

2. There are lots of candidate explanations.

3. Most of these are related to Econ Nobels that have already been given.

4. There might be other explanations no one has thought of.

17/So Branko's question -- Why no Econ Nobel for studying China's development? -- leads us to a few other questions.

First, suppose it was a combination of the aforementioned factors. Should a prize go to someone who writes an article making that claim? Heck, I could do that!

18/Suppose there is no single magical silver-bullet answer to the question of why countries develop? Suppose it's just a mix of stuff?

In that case, it seems like there should never be a prize for one researcher who explains China's growth.

19/Next question: Should there be an Econ Nobel for people who do *empirical* work on China's growth?

Here we run into a problem inherent to research prizes in general: Empirical work tends to be incremental, while prizes tend to reward big single results.

20/Suppose 200 excellent empirical papers slowly accumulate, and give us a good overall picture of which factors were important for Chinese growth.

Which of those 200 gets the Econ Nobel? Does any?

21/This is also a problem in physics, chemistry, and medicine, of course. Single brilliant experiments get prizes, but understanding of phenomena often comes not from single brilliant experiments but from the accumulation of many small experiments.

22/So part of the problem with the Econ Nobel is just a general problem of any research prize: Incrementalism and teamwork is ignored in favor of a "lone genius" model of research that is only occasionally applicable.

23/Finally, there's the question of whether we should give a Nobel to someone who has an unproven Grand Unified Theory of development.

My answer is: No. Such grand theories too often turn out to be snake oil.

bloomberg.com/opinion/articl…

24/So in conclusion:

1. If someone comes up with a Grand Unified Theory of Chinese development, we should test it before rewarding it.

2. Research prizes have severe limitations that make them incomplete or even poor guides for where researchers should direct their effort.

25/But one coda:

It's possible that increasing interest in the "export discipline" idea will lead to a development econ Nobel in the future. Maybe it'll be Dani Rodrik, maybe someone else.

It seems like the Big Development Idea that econ has overlooked.

lse.ac.uk/international-…

26/In any case, figuring out why countries develop is insanely hard, and we're not going to find The Answer soon, and in the meantime I'm absolutely fine with some auction theorists getting prizes for making our world a little more efficient.

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