Resident Expert: Unexpected Causes of Slow Economic Development

A "vicious circle"

NYU Abu Dhabi Global Professor of Economics François Bourguignon, who was the chief economist of the World Bank from 2003-07, has spent decades studying the benefits and sources of equality of incomes – and the roadblocks to it. Bourguignon, one of the planet's leading experts on the subject, has launched a huge study of how institutions – political, social, and otherwise – can alter a country's income equality level and slow down development.

The project examines in depth the income-equality challenges facing one country, Tanzania. Bourguignon and economist Jean-Philippe Platteau of Belgium's Université de Namur, are co-directors of a study known as Economic Development and Institutions, funded by the United Kingdom's Department for International Development. The project will run for five years in its first phase, involving dozens of scholars from many countries.

The "very ambitious project," began about one year ago, Bourguignon said. "We're trying to learn how we can cut the vicious circle by which bad institutions generate slow development, and slow development generates bad institutions."

Tanzania is a suitable place to study these issues, he noted, because gross domestic product per capita has been growing at 4 percent annually, but poverty has not decreased – by one measure, known as the multidimensional poverty index, it has actually worsened.

When I got into the World Bank I thought that development was essentially an economic issue. But by the time I left I was convinced that the main problem was political and institutional.

Global Professor of Economics François Bourguignon

"When I got into the World Bank I thought that development was essentially an economic issue," said Bourguignon. "But by the time I left I was convinced that the main problem was political and institutional." Development, he said, is something that should be looked at from multiple angles.

Accordingly, the research will involve not only economists and political scientists, he said, but also anthropologists, sociologists, and others.

This first year, he said, has been spent reviewing existing literature and trying to develop "the methodology to identify the key institutions that are holding up the development process."

Land rights, Bourguignon volunteered, offer a good example of what the project will examine. Economists know that when poor farmers have clear title to their fields they have more incentive, higher status, better access to credit, and other advantages. But in much of Africa, and elsewhere, land ownership is vague.

The problem is well understood, and "in many countries, titling programs have worked well," Bourguignon said. But "in Tanzania it is clear that the bureaucracy for land transfers is not working; those people are not well-trained … and are somewhat corrupt. So, in some cases investors get discouraged and might prefer to go through illegal channels," which constrains growth and sustains inequality.

Once the scholars comprehend the role key institutions actually play in determining the pace of development and income equality, they will move to an experimental phase, altering situations in a given area to see what changes result through randomized control trials. That will require cooperation from NGOs or government officials, he noted. "It takes time to identify communities where the experiment will take place, and communities to serve as a control … This is a very long process."

Collecting data won't be easy

There are obvious problems in gaining official cooperation in studying corrupt or inept national institutions. "We try to uncover what is hidden to understand what is going on," Bourguignon said. He and his colleagues interviewed some senior Tanzanian leaders, past and present, but "of course there are things they don't want to reveal. We have to try to understand the economic interest behind that, and get the whole story."

And even after all that, Bourguignon noted, it's far from clear that lessons learned in one country will apply elsewhere.

We try to uncover what is hidden to understand what is going on.

François Bourguignon

Still, understanding this kind of big complex problem must start somewhere. And Bourguignon is widely recognized as a leading scholar in this field, so much so that he was awarded a 2016 Dan David Prize of $1 million for his previous research. David, a Romanian-born Israeli businessman who died in 2011, endowed the prizes to reward cross-disciplinary research that promotes humanistic achievements.

"I was very surprised to receive this," Bourguignon said. "In fact I didn't even know this prize existed." The award comes to Bourguignon with almost no strings attached, but he said "part of it will be donated to a charity, most likely a development-oriented NGO.

By Brian Kappler for NYUAD Public Affairs