The new gold standard in development economics? (The Hindu)

Mains Paper 3 : Economy
Prelims level : Randomised control trials
Mains level : Pros and cons of Randomised control trials

Context

• Development economics has changed a lot during the last two decades or so, mostly due to the extensive use of ‘randomised control trials’ (RCT).
• ‘Randomistas’ are proponents of RCTs to assess long-run economic productivity and living standards in poor countries.

An evolution

• The concept of RCT is quite old; instances of RCTs can be traced back in the 16th century.
• The statistical foundation of RCT was developed by British statistician Sir Ronald Fisher, about 100 years ago, mostly in the context of design of experiments.
• ‘Control’ and ‘randomisation’ together constitute an RCT. In 1995, statisticians Marvin Zelen and Lee-Jen Wei illustrated a clinical trial to evaluate the hypothesis that the antiretroviral therapy AZT reduces the risk of maternal-to-infant HIV transmission.
• A standard randomisation scheme was used resulting in 238 pregnant women receiving AZT and 238 receiving standard therapy (placebo).
• It is observed that 60 newborns were HIV-positive in the placebo-group and 20 newborns were HIV-positive in the AZT-group. Thus, the failure rate of the placebo was 60/238, whereas that of AZT was only 20/238, indicating that AZT was much more effective than the placebo.
• Drawing such an inference, despite heterogeneity among the patients, was possible only due to randomisation.
• Randomisation makes different treatment groups comparable and also helps to estimate the error associated in the inference.

Marking a change

• Social scientists slowly found RCT to be interesting, doable, and effective. But, in the process, the nature of social science slowly converted from ‘non-experimental’ to ‘experimental’.
• Numerous interesting applications of RCTs took place in social policy-making during the 1960-90s, and the ‘randomistas’ took control of development economics since the mid-1990s.
• About 1,000 RCTs were conducted by Prof. Kremer, Prof. Banerjee and Prof. Duflo and their colleagues in 83 countries such as India, Kenya and Indonesia.
• These were to study various dimensions of poverty, including microfinance, access to credit, behaviour, health care, immunisation programmes, and gender inequality.
• While Prof. Banerjee thinks RCTs “are the simplest and best way of assessing the impact of a program”, Prof. Duflo refers to RCTs as the “tool of choice”.

Critics of RCTs in economic experiments

• Critics of RCTs in economic experiments think that in order to conduct RCTs, the broader problem is being sliced into smaller ones, and any dilution of the scientific method leaves the conclusions questionable.
• Economists such as Martin Ravallion, Dani Rodrik, William Easterly, and Angus Deaton are very critical of using RCTs in economic experiments.
• Randomisation in clinical trials has an additional impetus — it ensures that allocation to any particular treatment remains unknown to both patient and doctor. Such kind of ‘blinding’ is central to the philosophy of clinical trials and it helps to reduce certain kinds of bias in the trial.
• It is believed that the ‘outcome’ or the ‘treatment-response’ might be influenced if the patient and/or the physician are aware of the treatment given to the patient.
• Such kind of ‘blinding’ is almost impossible to implement in economic experiments as participants would definitely know if they get any financial aid or training.
• Thus, randomisation must have a much less impact there. Often, economists miss such an important point.

Way forward

• Unless randomisation is done, most of the standard statistical analyses and inference procedures become meaningless.
• Thus, “RCT or no RCT” may not be just a policy decision to economics; it is the question of shifting the paradigm.
• The “tool” comes with lot of implicit baggage. With randomisation dominating development economics, implicitly, economic experiments are becoming more and more statistical.
• This is one philosophical aspect which economists need to settle.

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Prelims Questions:

Q.1) With reference to the 36th GST Council Meeting, consider the following statements:
1. The GST rate on all Electric Vehicles has been reduced from 12% to 5%
2. The GST rate on charger or charging stations for Electric vehicles be reduced from 18% to 5%.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: C
Mains Questions:
Q.1) With RCT becoming a dominant factor, ‘randomistas’ could be changing the social sciences paradigm. Elucidate the statement.