Development Economics is the BEST Field of Economics

development economics is the best field of economics i am going to tell you how i came to love development economics and then i'm going to give you a taste of what it's like to study economics by exploring the relationship between schooling and economic growth now you might think yeah schooling leads to more economic growth but what we're going to find out is that it doesn't and then we're going to explore what we can do to change that first let me tell you about how i came to realize development economics is so important it's january 2010 and i received a message from my mom saying there has been an earthquake in haiti i need to go check the news i just spent the past two years working with haitian immigrants in florida i have connections with haiti and this was something that i needed to look at i didn't know it when that message came through but in the following months we learned that that earthquake killed 200 000 people while most people remember the haitian earthquake they forget that just a few weeks later an even bigger earthquake hit the world in chile there was an earthquake that was 10 times more powerful than the earthquake that hit haiti yet we basically have forgotten about this and the reason why is because the earthquake in haiti killed 200 000 people and the 10 times more powerful earthquake in chile only killed 525 how can an earthquake ten times more powerful be less than one percent as destructive the answer is economic development chile's per capita gdp in 2010 was hundred dollars hades was 665 chile was 20 times richer than haiti and because they were richer they had better buildings they had better safety measures and haiti lacked all of those many opponents of economics build up this strawman of what economics is focused on they say we're just focused on profits we're just focused on efficiency but they failed to recognize that the economy is about people economic development is about making people's lives better that example of haiti and chile tells me how important economic development is and when you study economic development it's about making people's lives better so what is development economics it's a field that's focused on some of the most important questions in the world today we're not focused on silly questions like do sumo wrestlers cheat in their matches we're worried about bringing people out of poverty the kind of questions you'll address in development economics are how do poor countries become rich why are some poor countries stuck in poverty the distinguishing feature of development economics is the country where you're studying you study questions in poor countries that means that basically any field can come in and study development economics if you're interested in education you can study that in developing countries if you're interested in health you can study that in poor countries too if you're interested in industrial organization that happens in poor countries so any other field belongs in development economics as long as you're looking at poor countries a good place to get started in development economics is to read abigail banerjee and esther duflo's book poor economics it's incredibly popular it is a classic now and it'll get you started down that path i also recommend studying angus deaton's the great escape now both of these books are written by nobel prize laureates they are great introductions to the topic once you go into those you can dive deeper into the topics that you're more interested in and of course i've done several videos on topics in developing countries i'll put a link to a playlist up here so you can dive into those but let's go ahead and give you a taste of development economics by exploring a really interesting question how does schooling affect economic development let's address this question using different fields of economics we're going to start with some macro theory then we're going to get into empirical macro then we're going to look at institutions and finally we'll get down to the micro level all of these levels addressing the big question of the relationship between schooling and economic growth and development what is the theoretical relationship between schooling and economic growth well schooling is supposed to build up your human capital or your skills your ability to solve problems so the more schooling you get the better equipped you should be to handle tough problems you become a more productive worker so the first order effect of schooling should be to raise labor productivity which then should lead to economic growth we should see a positive relationship but it doesn't stop there a key component of economic growth is innovation discovering new ways to build things discovering new ways to create and ideas and innovations are more likely to come when you have more people with education so not only does schooling raise worker productivity it increases the chance of finding new ideas that lift the entire economy think of education as changing the fuel to your fire from wood to coal coal has a higher energy density it burns longer and it burns hotter when you use coal you get more efficient output similarly when you move the education of your workforce up you should get a more powerful workforce you should get a more powerful economy now that is the theory behind the relationship of schooling and economic growth now we want to look at the macro level and say what is the actual relationship that we see it is not hard to find evidence for this theory here's a map from 1985 that shows the average schooling level of people in the countries around the world and it's pretty easy to see that the rich countries have higher levels of education and the poor countries have lower levels of education now i choose 1985 because this distinction is very sharp we can look at 2017 and we still see it there it's a little bit fuzzier but we definitely are seeing a relationship between how rich a country is and the level of education in that country but that doesn't necessarily tell us that education leads to economic growth it could be that economic growth leads us to get more education how could we dive into this macro data and understand it better well thanks to the world bank development indicators it is really easy to go in and grab information about gdp per capita and the average level of schooling and we can look at how these things move together now this theory is true let's think about what this data should look like here is a graph where the x-axis is the average years of schooling for a country and the y-axis is the gdp per capita the theory we just covered said that the more schooling you get the richer your country should become now let's get data from 1970 what we expect to find is there's going to be a positive relationship between education and economic development but since the world as a whole was poorer and less educated back then we expect to find them down at this bottom half of the graph but we still should find a positive relationship with the data that we have since 1970 we've had a big push towards getting more education and we've seen a lot of economic growth around the world what will happen to this graph when we put the data on it well if schooling really does affect economic growth what we should see is basically these dots are going to shift up along this line there will be more countries with higher education but those countries will also have higher levels of economic development so our final graph should look something like this well what happens when we actually look at the data this is the line that's created with the data from 1970. it looks like that graph we just created but what happens when we bring in the 2010 data it's not on the same line it's shifted over this is a really big deal this should be blowing your mind right now look at a country that had five years of education in 1970 see how high their gdp per capita was now if you look at a country in 2010 with that same level of average education they are much poorer now this graph doesn't actually tell us what's happening to individual countries we can do a nice little scatter plot and see how much did education increase in a country and how much did its gdp per capita increase here on the x-axis we have the percentage increase in education and on the y-axis we have the percentage increase in gdp per capita and what we're seeing here is essentially no relationship between education growth and economic growth the two biggest growing countries at this time were korea and china and they had some of the lowest growth in education if we get rid of korea and china it looks like there is absolutely zero relationship between growing education and growing your economy this is a puzzle this is the kind of thing that just makes me realize how interesting development economics is because we have a theory that says schooling should lead to more economic growth and yet the empirical evidence says it doesn't work now we can debate about whether we can actually aggregate education like this or whether gdp per capita is the right level of measuring economic development but the point is this is still puzzling but we also don't have to stop there at the macro level let's dive one more level down and look at the institutional level what do schools look like in these poor countries well let's just start off with what schools look like in a rich country let's say you were to go to a school in australia on a random day how many teachers would you expect to find in school that day well in australia on a random day you would expect to be fined 97 of the teachers there only three percent of the teachers would be absent those teachers spots would be filled by substitute teachers britain is pretty similar it's in the three percent rage and the u.s is a little bit higher around four to five percent of teachers are missing on a given school day well if we go down to peru that number goes up to 11 in india on a random day you can expect to find 25 of teachers missing and uganda is very similar at 27 percent it's hard to expect students to learn when their teachers aren't even showing up to school in fact we have some evidence for this from guinea bissau guinea-bissau actually looks a lot like these other countries but possibly even worse 25 of school days the school was closed like not a single teacher was there because the school was shut down due to strikes as a result it shouldn't be that surprising to find that 35 percent of eight-year-olds couldn't even recognize a single letter in the alphabet and 90 of them could not read a familiar word looking at the institutional level tells us that schooling might not actually be a good proxy for education students are going to school but they aren't learning so average school years is increasing but human capital isn't changing at all can we do anything about this well this is where we can dive one more layer down and we can go to the micro level that's why i bring up guinea bissau there were some economists who went to guinea-bissau and they set up a school program they said what if we just created an intensive school program something where we had good teachers we paid them well we gave them feedback on their teaching we made sure that these parents knew that their kids were getting a good education would these kids actually learn they ran the school for four years and then they tested the students when they were eight and remember that thirty-five percent of eight-year-olds in guinea-bissau cannot recognize a single letter in the alphabet well 100 of students could recognize a letter in the alphabet in these schools and in fact nearly 100 of them could read there was huge gains in the learning from this program the graph that just blows my mind here is this one showing the distribution of scores for kids who go to regular government schools and the distribution of scores for kids who went to the economist school they look like two totally different populations but look at what economists did here we had this theory about how schooling should affect economic growth we went to the data and we found that it wasn't right we found that there was not a connection between schooling and economic growth so we looked at the institutions and we realized students in these schools and poor countries weren't learning anything and so the next step was to say well what do we need to do to improve education in these countries what are the types of schools and programs that will actually help students learn every step of the way here has been about economists trying to make lives better for people in poor countries that is why development economics is the best field in economics if you're interested in learning more about development economics go ahead and check out this playlist up here if you're interested in learning more about fields in economics there's going to be a playlist right here this is part of a series that i'm doing here in market power a community of people interested in and excited about economics i'm excited to see you in these other videos

Channel: Market Power

Views: 11,197

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Id: nCD4T0kUZrA

Length: 13min 43sec (823 seconds)

Published: Mon Jan 04 2021