Banerjee, Duflo, Kremer, and the Rise of Modern Development Economics*

• Published date: 01 July 2020
• Date: 01 July 2020
• DOI: http://doi.org/10.1111/sjoe.12418

Scand. J. of Economics 122(3), 853–878, 2020

DOI: 10.1111/sjoe.12418

Banerjee, Duflo, Kremer, and the Rise of

Modern Development Economics*

Benjamin A. Olken

MIT, Cambridge MA 02142, USA

bolken@mit.edu

Abstract

In 2019, Abhijit Banerjee, Esther Duflo, and Michael Kremer received the Sveriges Riksbank

Prize in Economic Sciences in Memory of Alfred Nobel. These three scholars were recognized

“for their experimental approach to alleviating global poverty”. This paper reviews the

contributions of these three scholars in the field of developmenteconomics, to put this contribution

in perspective. I highlight howthe experimental approach helped to break down the challenges of

understanding economic development into a number of component pieces, and I contrast this to

understanding development using macroeconomic aggregates. I discuss pioneering contributions

in understanding the challenges of education, service delivery, and credit markets in developing

countries, as well as how the experimental approach has spread to virtually all aspects of

development economics.

Keywords: Development economics; randomized trials

JEL classification:O12

I. Introduction

Development economics, broadly speaking, seeks to answer the following

questions. Why are some countries poor and some countries rich; and,

relatedly, what can poor countries do to grow and become richer in the

future? How do the many and varied phenomena studied by economists

differ systematically in environments characterized by low levels of

development?

The field of development economics has changed dramatically over

the past 25 years, and now it is largely a micro-empirical field, with

countless studies on all aspects of economic development. While many

micro-empirical approaches are used, development economics has led the

way in using randomized field experiments to tackle a wide variety of

development challenges. By comparison, 25 years ago, there was far less

*I thank the three Nobel laureates – Abhijit Banerjee, Esther Duflo, and Michael Kremer – for

countless conversations overthe many years, including comments on this article. Special thanks

also to Rema Hanna and Seema Jayachandran for helpful comments. All errors are my own.

C

The editors of The Scandinavian Journal of Economics 2020.

854 The Nobel Memorial Prize for Banerjee, Duflo, and Kremer

research in development economics. The research that did exist was much

more heavily dominated by theory and, to the extent that it was empirical,

it was much more heavily oriented towards macro aggregates.

The explosion of research in the field has been driven by the

combination of two key, connected ideas: first, the idea that one should

focus on understanding the development challenges through the use of

micro-empirical studies to break down the development challenges into

smaller pieces; and, second, the idea that one can achieve this in particular

through running randomized controlled trials (RCTs). The combination

of these two ideas – the first a substantive approach to understanding

development, and the second a methodological approach – has driven a

complete revolution in the field.

While, of course, many scholars have been involved in this dramatic

shift, the 2019 Nobel Memorial Prize was awarded to three individuals

who have led this transformation, Abhijit Banerjee, Esther Duflo, and

Michael Kremer, “for their experimental approach to alleviating global

poverty”.

As a measure of the speed with which the field-experiment-based

approach has swept the field of development economics, today, less than

25 years after Kremer’s first field experiment on child sponsorship was

carried out in Kenya, the Abdul Latif Jameel Poverty Action Lab1counts

over 1,000 randomized evaluations, either completed or ongoing by its

member academics worldwide. These evaluations include many by senior

economists who were not originally trained in this type of work but

who have begun to incorporate it into their toolkit. This is surely a

substantial underestimate of the total number of such studies. The amount of

high-quality empirical evidence used in development economics is almost

unrecognizable compared with what it was before this revolution took off.

While randomized field evaluations appear throughout microeconomics,

this change happened first and foremost in development economics. For

example, a review of top economics journals from 2009–2013 found that

there were more RCTs published in development economics than in all

other fields of economics combined; development economics also had the

highest percentage of published papers in top journals that were RCTs (46

percent; Finkelstein and Taubman, 2014). I performed a similar review of

the American Economic Review,Quarterly Journal of Economics,Journal

of Political Economy,Review of Economic Studies, and Econometrica 20

years earlier, from 1989 to 1994, and there were zero development RCTs

1This is a center at Massachusetts Institute of Technology (MIT) co-founded by Banerjee, Duflo,

and Sendhil Mullainathan (and which I co-direct), which seeks to advancethe use of randomized

evaluations.

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The editors of The Scandinavian Journal of Economics 2020.