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Economics, Opinion

Poverty alleviation core of development economics

This editorial appeared in Chinese State Media.

Written by

Updated: October 29, 2019

After Abhijit Banerjee, Esther Duflo and Michael Kremer were awarded the 2019 Nobel Memorial Prize in Economic Science for their outstanding contributions to “experimental research” into the “daunting issue” of global poverty, many have questioned the Nobel Committee’s choice, with some saying China’s poverty alleviation efforts have been the most effective in the world and are more worthy of study. Quite a few have even said China deserves the Nobel Prize for economics for successfully lifting about 800 million people out of poverty over the past four decades.

But since the three winners are experts in development economics, this year’s Nobel Prize for economics is seen as highlighting the global need for eradicating poverty and achieving common economic growth.

Since the end of World War II, the gap between developing and developed countries, in general, has widened, instead of narrowing. Around the world, 600-700 million people still live below the subsistence level, and 100 million children are stunted by malnutrition. At a time when the global economy is facing tremendous downward pressure and the gap between the rich and poor is widening, the awarding of the Nobel Prize for economics to the three development economists is of great practical significance.

In order to help free less-developed countries from the shackles of poverty, development economists in the past have often put forward overall development strategies, such as industrialization, developing an export-oriented economy or resorting to an import-substitution strategy, but no one knows how effective these strategies would be for those countries.

For nearly 20 years, development economists have focused on more specific and constructive poverty alleviation programs, as well as policies on education, healthcare, micro-finance and governance. These smaller, more accurate, more manageable problems, according to the three Nobel Prize winners, can be best assessed by carefully designed experiments involving the most affected people.

The core method the three have used is “randomized field trials”. To understand the effects of a policy on the economy, the economists, similar to natural scientists, randomly divided the subjects into experimental and control groups to find the differences between two groups through experimental intervention over a given period of time.

This scientific approach can quantify the results of thousands of poverty-alleviation policies, greatly affecting other disciplines as well as the governments and anti-poverty institutions in developing countries, and has thus received extensive endorsement. The approach is likely to produce more fruitful results in the future, and could further improve the lives of the world’s poorest people, transform the economies of developing countries for the better, and help boost global growth.

But after Banerjee, Duflo and Kremer were awarded the Nobel economics prize, many have said China’s policy to lift people out of poverty deserves an in-depth study and its achievements in reducing poverty are more worthy of praise.

China has made remarkable achievements in eradicating poverty over the past four decades, lifting out of poverty about 800 million people-more than the total population of Latin America or the European Union. Since the 18th National Congress of the Communist Party of China in 2012, the central government has made winning the battle against poverty a goal to be realized by 2020. The problem of absolute poverty that plagued the Chinese nation for thousands of years is expected to be solved once for all.

China’s miraculous poverty alleviation story shows, that to eradicate poverty, developing countries must have sustained economic growth. Which in essence is China’s “poverty alleviation story”.

The studies of Banerjee, Duflo and Kremer don’t contradict China’s poverty alleviation policy. Of course, had China adopted more targeted policies, especially for special areas and intensely impoverished people, and extended them more quantitative support by conducting randomized field experiments, it might have achieved greater results.

The experiences of China and, to a certain extent, India show the importance of economic development to poverty alleviation. Yet to sustain a high growth rate is not easy for a country. Strong government leadership, a stable social order and a productive market economy guarantee sustained economic growth, which in turn ensures all the people in a country take part in economic development and share the fruits of development.

For developing countries, the three Nobel economics prize winners’ randomized field experiments can help them adopt better and more specific poverty reduction policies. At the same time, less-developed countries could learn from China’s experience and carry out institutional reform to ensure economic growth. For example, they can seize the opportunities provided by the China-proposed Belt and Road Initiative to solve their infrastructure and technological problems and achieve sustained economic growth.

The author is a professor at Guanghua School of Management, Peking University.

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China Daily
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