September 23, 2014—Do planners or searchers hold the key to improving the lot of the world’s poor? A new information resource can help answer this question.
What works for market development: A review of the evidence examines existing research on international development. The review, a “pre-study,” was conducted by Sunil Sinha, managing director for Nathan Associates London Ltd., Mark Thomas, a director of Nathan Associates London, and Johan Holmberg, an economist with the Nordic Consulting Group Sweden.
Though it was prepared in order to guide the Swedish International Development Cooperation Agency (SIDA), the paper offers insight for anyone involved in current discussions of what works and what doesn’t in foreign aid. The authors look at research on private sector development, financial sector development, and trade, and devote a special section to agriculture.
“At a time of austerity at home, aid agencies have come under greater pressure to justify spending money on the poor in developing countries,” the authors state. “New research has cast doubt on old certainties and questioned the approach to aid (i.e. planners vs searchers) and the evidence on which it is based (conventional methods vs randomized experiments).”
William Easterly of New York University’s Development Research Institute described planners and searchers in his 2006 article in the Asian Development Review, Planners versus Searchers in Foreign Aid. Planners believe they know the answer beforehand and can “impose” technical solutions. Searchers “explore solutions by trial and error.”
Sinha, Thomas, and Holmberg make the following general observations about the deployment of aid to alleviate poverty:
—“Several assertions are over-played or unproven (e.g. doing business reforms, financial inclusion)” and “there are vital gaps in knowledge in regards to creating jobs and reducing regional inequalities that are vital for reducing poverty.”
—Innovative approaches are “frequently scaled up and used out of context before rigorous evidence in support of their efficacy is available.”
—The attempt to find out what works is hampered by “a cycle of over-claiming the benefits of new approaches without the evidence to back them followed by complete abandonment without learning lessons when limitations are observed.”
Greatest Gap in Research
In citing “strong evidence” that private sector investment and productivity gains generate rapid and sustained growth, the authors conclude that “the greatest gap in research is how to create productive jobs.” They find that private sector contributions may not create adequate employment or may not spread the benefits of growth widely enough among the population. Other “interventions,” including industrial policy, may be necessary, but the evidence in support of them is “patchy.”
Other key findings:
—Financial stability and diversity in financial services at a macro level (deepening) spur growth and reduce poverty. But evidence that financial inclusion—making more financial services available to the poor and disadvantaged—contributes to broad growth is insufficient. Even so, inclusion is justifiable on ethical grounds and the microfinance model should be improved rather than jettisoned.
—Increased trade clearly contributes to faster growth. Evidence of the contribution of regional trade agreements to growth is “weak.” Some sectors should be protected to “minimize the cost of adjustment,” though more research is needed into the costs of adjusting to trade openness and how to ease the effects. How the poor benefit from higher levels of imports also merits further research. Finally, evidence that trade facilitation, infrastructure, and reasonable trade costs spur growth is “compelling.”
Agriculture receives special mention because that sector achieves “major” gains in productivity in the beginning stages of development. The authors note the increasing importance of private sector involvement and recommend that SIDA “assess what functions can be entrusted to the private sector as its role [in promoting agriculture] evolves.” This advice certainly applies to others involved in development.
The authors helpfully provide case studies along with the literature review, with most examples from Africa.