Why Banerjee, Duflo, Kremer were chosen for 2019 Economics Nobel

This year, three economists have jointly won the Nobel prize for economics — Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology (MIT), and Micheal Kremer of Harvard University. They have been awarded “for their experimental approach to alleviating global poverty”.

A popular conception among economists is that they’re the high priests of the free market, downplaying the role of government and giving short shrift to the needs of the society’s poorest. A great many economists, however, defy this stereotype and spending their careers studying how to uplift the poorest citizens of the developing world through government action. Banerjee, Duflo and Kremer fall in this category.

But, how has their work benefitted the developing world?

Over the years, Banerjee, Duflo and Kremer have looked at programmes that nudge developing-world farmers to use more fertilizer, provide microcredit to slum residents, create quotas for women in the local government, provide deworming treatments for the poor, eradicate malaria, and many other targeted government interventions. In some cases — for example, with microfinance — the programmes haven’t lived up to their early promise. But many other initiatives have been successful in generating lasting benefits.

To some, spending on programmes like parasite control or tutoring might seem like tinkering around the margins. It’s true that investment and industrialisation is what ultimately transforms poor countries into rich ones. But not in China and India, as both countries have demonstrated that such growth can often leave the poorest behind for a very long time.

Banerjee and Duflo, the Nobel couple, noted that an educated, healthy, well-fed populace affects the rate of return on investment, and is thus crucial to kick-starting the process of rapid development. Meanwhile, in countries that haven’t yet started their industrialisation, alleviation of human suffering is the best that can be hoped for in the short term. So Banerjee, Duflo and Kremer’s work is crucial on multiple fronts.

Banerjee, who is an Indian American economist, is firmly rooted in Indian economic policies and research, especially in the fields of microfinance and financial inclusion. Besides, he was also one of the advisors to Congress for its ambitious NYAY scheme, proposed ahead of the 2019 general elections.

Banerjee and Duflo, along with co-authors Shawn Cole and Leigh Linden, studied a programme that hired tutors for underperforming students in India, as well as a computer-assisted learning programme, and concluded that both were effective. Duflo has also found big wage gains from public education spending in India, confirming the central role of schools for economic growth.

How does this year’s prize differ from other years?

Among notable things about this year’s prize is the type of research it has rewarded. Economists are often thought of as theorists, drawing supply and demand curves on their blackboards and ignoring the complex realities of the world outside. But recent decades have seen a broad shift towards empirical data analysis, as the question of cause and effect has become central to much of the profession.

All three of them have also helped pioneer one of the most important new empirical techniques — randomised controlled trials. Instead of studying the impact that government programmes have on their own, they actually go into poor countries and create the programmes.

However, this trend is not without critics. The critics argue that RCTs tend to have weak statistical power, and that without a solid understanding of why the programmes being studied have the effects they do, it will be very difficult to apply the lessons elsewhere.

In a 2017 speech, 46-year-old Duflo, the youngest economist to ever win the Nobel, responded to the critics by redefining the whole idea of what economists should do. She likened development economists to plumbers, solving real-world problems in specific situations instead of seeking sweeping universal insights. Because the problems of poverty differ so greatly from place to place, she argues, economists should get their hands dirty and figure out specific solutions for each case.