The Nonlinear Library EA - What do we really know about growth in LMICs? (Part 1: sectoral transformation) by Karthik Tadepalli
Dec 3, 2023
18:04
Welcome to The Nonlinear Library, where we use Text-to-Speech software to convert the best writing from the Rationalist and EA communities into audio. This is: What do we really know about growth in LMICs? (Part 1: sectoral transformation), published by Karthik Tadepalli on December 3, 2023 on The Effective Altruism Forum.
To EAs, "development economics" evokes the image of RCTs on psychotherapy or deworming. That is, after all, the closest interaction between EA and development economists. However, this characterization has prompted some pushback, in the form of the argument that all global health interventions pale in comparison to the Holy Grail: increasing economic growth in poor countries.
After all, growth increases basically every measure of wellbeing on a far larger scale than any charity intervention, so it's obviously more important than any micro-intervention. Even a tiny chance of boosting growth in a large developing country will have massive expected value, more than all the GiveWell charities you can fund.
The argument is compelling[1] and well-received - so why haven't "growth interventions" gone anywhere? I think the EA understanding of growth is just too abstract to yield really useful interventions that EA organizations could lobby for or implement directly. We need specific interventions to evaluate, and "lobby for general economic liberalization" won't cut it.
The good news is that a large and active group of "macro-development" economists have been enhancing our understanding of growth in developing countries. They (mostly) don't run RCTs, but they still have credible research designs that can tell us important things about the causes and constraints of growth. In this series of posts, I want to lay out some stylized facts about growth in developing countries. These are claims which are backed up by the best research on this topic, and which tell us something useful about the causes and constraints of growth in developing countries.
My hope is not to pitch any specific interventions, but rather to give you the lay of the land, on which you can build the case for specific interventions. The way I hope for you to read this series is with an entrepreneurial eye. "This summary suggests that X is a key bottleneck to growth; I suspect Y could help solve X at scale. I should look more into Y as a potential intervention." or "This summary says that X process helps with growth; let me brainstorm ways we could accelerate X."
As part of that, an important caveat is that I will not cover topics where I believe there's no prospect for an effective intervention. For example, a large body of work emphasizes the importance of good institutions for development; I don't believe that topic will yield any promising interventions, so I won't cover it.
Sectoral Transformation
In this post, I will start with the fundamental path of growth: sectoral transformation. Every country that has ever gotten rich has had the following transformation: first, most of the population works in agriculture. Then, people start to move from agriculture to manufacturing, coinciding with a large increase in the country's growth rate. Finally, people move out of manufacturing and into services, coinciding with the country's growth slowing down as it matures into a rich economy.
This is the process of sectoral transformation, and it is basically a universal truth of development. So it's no surprise that a big focus of macro-development is how to catalyze sectoral transformation in developing countries.
1. Agricultural productivity growth can drive sectoral transformation... or hurt it.
Every economy starts out as agrarian, because everyone needs food to survive. Agricultural productivity growth allows economies to produce enough food with fewer people, so that most people can move out of agriculture. This is why the US can produce more food per person than India, even though 2% of the US workforce in agriculture compared to 45% of India's workfor...
To EAs, "development economics" evokes the image of RCTs on psychotherapy or deworming. That is, after all, the closest interaction between EA and development economists. However, this characterization has prompted some pushback, in the form of the argument that all global health interventions pale in comparison to the Holy Grail: increasing economic growth in poor countries.
After all, growth increases basically every measure of wellbeing on a far larger scale than any charity intervention, so it's obviously more important than any micro-intervention. Even a tiny chance of boosting growth in a large developing country will have massive expected value, more than all the GiveWell charities you can fund.
The argument is compelling[1] and well-received - so why haven't "growth interventions" gone anywhere? I think the EA understanding of growth is just too abstract to yield really useful interventions that EA organizations could lobby for or implement directly. We need specific interventions to evaluate, and "lobby for general economic liberalization" won't cut it.
The good news is that a large and active group of "macro-development" economists have been enhancing our understanding of growth in developing countries. They (mostly) don't run RCTs, but they still have credible research designs that can tell us important things about the causes and constraints of growth. In this series of posts, I want to lay out some stylized facts about growth in developing countries. These are claims which are backed up by the best research on this topic, and which tell us something useful about the causes and constraints of growth in developing countries.
My hope is not to pitch any specific interventions, but rather to give you the lay of the land, on which you can build the case for specific interventions. The way I hope for you to read this series is with an entrepreneurial eye. "This summary suggests that X is a key bottleneck to growth; I suspect Y could help solve X at scale. I should look more into Y as a potential intervention." or "This summary says that X process helps with growth; let me brainstorm ways we could accelerate X."
As part of that, an important caveat is that I will not cover topics where I believe there's no prospect for an effective intervention. For example, a large body of work emphasizes the importance of good institutions for development; I don't believe that topic will yield any promising interventions, so I won't cover it.
Sectoral Transformation
In this post, I will start with the fundamental path of growth: sectoral transformation. Every country that has ever gotten rich has had the following transformation: first, most of the population works in agriculture. Then, people start to move from agriculture to manufacturing, coinciding with a large increase in the country's growth rate. Finally, people move out of manufacturing and into services, coinciding with the country's growth slowing down as it matures into a rich economy.
This is the process of sectoral transformation, and it is basically a universal truth of development. So it's no surprise that a big focus of macro-development is how to catalyze sectoral transformation in developing countries.
1. Agricultural productivity growth can drive sectoral transformation... or hurt it.
Every economy starts out as agrarian, because everyone needs food to survive. Agricultural productivity growth allows economies to produce enough food with fewer people, so that most people can move out of agriculture. This is why the US can produce more food per person than India, even though 2% of the US workforce in agriculture compared to 45% of India's workfor...