Why is the Nobel Prize for Economics important for the Pacific? It’s changing the way we do development

Last month three development economists won the 2019 Nobel Memorial Prize in Economic Sciences, working in an area of economics that is only now gaining traction in the Pacific region. Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology (M.I.T.) and Michael Kremer of Harvard won the award—which is technically known as the Sveriges Riksbank Prize— “for introducing a new approach to obtaining reliable answers about the best ways to fight global poverty,” the Nobel committee said in its citation.

The prize winners’ experimental work is in the use of Randomised Controlled Trials or RCTs. This methodology is traditionally associated with medical trials, and entails giving a ‘treatment’ or development intervention to some people but not others, and then comparing the outcomes for both groups. The ‘R’ in RCTs is critical; treatments are randomly allocated and in sufficiently-large sample groups, this means the treatment and control groups will be very similar. Treatments can include handing over policing powers to the community, distributing cash vouchers rather than block funds, or changing the methodology and location of cervical cancer tests.

Australian National University academic, Chris Hoy is currently working on two RCTs in the Pacific; in Fiji on ‘the impact of a secured transaction framework’ and with Papua New Guinea’s tax office to test the effectiveness of SMS messages (or “nudges”) that remind Small and Medium Sized Enterprises (SMEs) of lodgement due dates, or inform them about the public benefits of paying tax.

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