Thursday, February 28, 2008

What lies behind China's success in poverty reduction (and perhaps a silent revolution in development economics)

A sporadic blog entry on development economics:

According to Martin Ravallion, Director of the Development Research Group of the World Bank, two-thirds of poverty reduction in China since 1981 took place in the 1980s, with 40 percent concentrated in the first three years. That was before foreign direct investment was encouraged. That was before international trade was opened up. That was before labor-intensive manufacturing sectors started growing.

The bulk of poverty reduction in China, therefore, should be attributed to agricultural productivity growth due to the introduction of the Household Responsibility System (HRS) around 1980. (The link between agricultural productivity growth and the HRS was established by Justin Lin, the new World Bank chief economist, in his paper published in AER in 1992.)

Mr Ravallion, in his working paper, mentions how Chinese political leadership pursues the promotion of economic development. They allow local governments to experiment new policies. If they succeed, such new policies are scaled up to the whole country. Interestingly, this sounds to me very similar to what Dani Rodrik and Esther Duflo advocate.

As is the case with all arguments on China's success in development, the biggest puzzle still remains. Why do top officials of the Chinese Communist Party have an incentive to promote development in a political system that cannot be called democracy in a standard way.

UPDATE (March 2, 2008): So it's not surprising that Justin Lin announces the trial-and-error approach to poverty reduction (HT: Dani Rodrik).

UPDATE 2 (March 2, 2008): Here's Justin Lin's view on development. Again it's not surprising given the Chinese path for poverty reduction described above.

1 comment:

yoichi kimura said...

Welcome back, Masa-san. Interesting Entry.

Which one of papers by Mr. Ravallion documents on the poverty reduction in early 1980s China?

As you said in the entry, the natural experiments in 80s China seem like being in a similar line as the policy-evaluation approach taken mainly by Duflo and others. I think that the benefit of having aside the experiences in 80s China is that they allow us to evaluate the generalizability of certain policies taken in some areas of China at the very first attempt, rather than that they can merely tell us the policy impacts on development. From the last paragraph of Rodrik's entry that you attached above, it seems the generalizability (or ''external validity'' in Rodrik's word) that macroeconomists like Rodrik and microeconomists like Duflo do still not agree on.

What is interesting to me is that it was Justin Lin, the new cheif economist in the World Bank, that found the linkage between the development phenomena in early 80s China and the policies underneath. I don't think that only Lin's works
brought him to D.C., and there must have been some intentions and thus politics to draw China into world development initiatives.

By the way, is the fact on Chinese experiences you just documented popular in recent Development economics literature? Because I have never heard about and found citation in any paper of Lin's work in AER in 1992.

By the way, I went to the lecture by prof. Duflo at the Tufts University in Massachusetts, which was mentioned in the Rodrik's blog entry you linked above. Duflo discussed her recent work about bednets etc. It was a general talk, not necessarily technical speech. But I had a good time there.