Urbanization Passes the Pritchett Test: The data presented here convinces me that policy-induced changes in the urban share of the population could have big effects on GDP per capita and could operate on a scale that affects the quality of life for billions of people. So in research on development policy, I am not persuaded that economists should narrow their focus to the analysis of such easily evaluated micro-initiatives as funding women’s self-help groups. Neither is Lant Pritchett.
In a characteristically incisive blog post, Lant expresses skepticism about the value of micro-initiatives that are being tried as strategies for encouraging economic development because they are easy to evaluate rather than because experience suggests that they have worked at a scale that is comparable to the problem that policy should address.
He recalls his experience as a member of a team with members from many developed countries that was evaluating a program in India that financed women’s self-help groups. A woman from West Bengal who had answered their questions said to the team, “You all are from countries that are much richer and doing much better than our country so your country’s women’s self-help groups must also be much better, tell us how women’s self-help groups work in your country.” Quoting now from Lant’s account:
We all looked at each other blankly as none of us had any idea whether there even were at any time in our countries’ history such a thing as “women’s self-help groups” … (much less government program for promoting them). We also had no idea how to explain that, yes, all of our countries are now developed but no, all of our countries did this without a major role from women’s self-help groups at any time (or if there were a role we development experts were collectively ignorant of it), but yes, women’s self-help groups promote development.
Pritchett proposes a basic, four part test that economists could consider when someone claims that governments or donors should experiment with policies designed to promote variable X because more X is good for development:
1. In a contemporary cross section, do countries that are more developed have more X?
2. When we look at the few countries for which we have long historical records, do the ones that become much more developed also acquire much more X?
3. In a more recent cross-sectional comparison of growth rates, do countries that have rapid growth in X also tend to experience a rapid increase in standards of living?
4. If we look for countries that switch from a regime of slow economic development to a regime of rapid development, do we see a parallel shift in the rate of growth of change in X?
The historical question, #2, deserves a separate treatment. Here I’ll show that when we consider the urban share of the population as our candidate variable (without any attempt at correcting for the quality of urbanization) the data from many countries in the years from 1955 to 2010 give us confidence that the answer to questions 1, 3, and 4 is yes, more urbanization is associated with income per capita. ...
[There's quite a bit more at the original post.]