Why are some countries rich and others poor? Differing accounts put more or less weight on the role of policies, geography, culture, history, and international interventions. Only by answering this question can one decide how best to reduce poverty in low-income countries. Yet few debates about public policy are more contentious. More than half a century of intensive efforts to improve the lot of the poor in the developing world has had mixed success. Although some countries, such as China, have made enormous progress in reducing poverty, many others have languished. Today, most estimates suggest that more than one billion people live on less than $1.25 per day.
Poverty presents both a moral and an intellectual challenge. No one can fail to be moved by seeing the slums that plague so many parts of the developing world. And the fact that one can travel a few hours by plane and find extremes of wealth and deprivation at either end of the journey is an insult to economists' notions of rationality, efficiency, and equity. There is no greater challenge to the discipline.
Yet traditional economics alone is not enough to grasp the problem fully. I learned this at a pivotal moment early in my career when a senior colleague asked me about my research interests. I proudly listed development economics among them -- and was promptly deflated when he told me that he, too, had once been interested in development, until it dawned on him that most of the problems of the developing world were political and so he did not have the necessary expertise to study the issue. Thankfully, the field of economics has changed a lot in the years since, and issues of politics and economics are routinely interwoven when trying to understand persistent poverty.
Economists have been better able to understand poverty thanks to growing access to micro-level data and new decision-making models that incorporate psychological factors. Three engaging new books showcase these microeconomic advances: Poor Economics, by Abhijit Banerjee
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