Open Forum: Good Economics for Hard Times

IMF News, December 2, 2019

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Opening Remarks by the First Deputy Managing Director, David Lipton.
Date: December 2, 2019.
Speaker introduced: professor Esther Duflo, winner of the 2019 Nobel Prize in economics.
Nobel laureates in 2019: Esther Duflo, Abhijit Banerjee, and Michael Kremer.
Notable biographical notes presented:
- Esther Duflo is the youngest-ever and only the second woman to be awarded an economics Nobel.
- Esther and Abhijit are professors at MIT; Michael Kremer is a professor at Harvard University.
- Esther co‑authored Poor Economics (Financial Times’ book of the year in 2011), translated into 17 languages.
- The IMF published a profile of Esther Duflo in 2003 when she had just founded the Poverty Action Lab.

Core methodological innovation highlighted:
- Use of randomized controlled trials (RCTs) to identify effective policy interventions and establish counterfactuals.
Complementary analytical tools used alongside RCTs:
- Contract theory.
- Behavioral economics.
Example application:
- Research on the “learning crisis” showing that providing textbooks, or building larger schools, does not by itself improve learning without better and more tailored teaching practices.

Findings attributed to Esther Duflo and collaborators:
- Increased immigration of workers does not result in lower salaries for native workers.
- Trade is not always beneficial for developing countries.
- Long‑held assumptions on growth, automation, and social media are challenged.
Practical implication:
- Experimental methods can reveal both whether an intervention works and why it works.

Relevance of experimental methods for the Fund:
- Importance of incorporating counterfactual thinking to assess the impact of policies on people’s well‑being.
- Recognition that Fund activities (surveillance, lending, monetary, fiscal, and structural policies) affect lives and interact with issues like inequality, corruption, gender discrimination, and climate change.
Limitations noted:
- Practical constraints prevent running Fund programs as controlled experiments (e.g., cannot implement a program in only part of an economy or in one country but not another).
Areas for institutional learning and adaptation:
- Better understanding of the political economy of reforms.
- Taking lessons from one country’s experience to inform another’s policy choices.
- Being open to new methods and fresh perspectives, especially when they challenge long‑standing assumptions.
- Improving communication to regain public trust and make economic advice more effective in practice.

Questions emphasized for further attention:
- How can policymakers communicate more effectively?
- How can experts regain the trust of an increasingly skeptical public?
- How do we design policies that keep the people we serve in mind and ensure advice tangibly improves lives?

Opening Remarks by the First Deputy Managing Director, David Lipton, December 2, 2019, IMF Communications Department.