Instruments of Development: Randomization in the Tropics, and the Search for the Elusive Keys to Economic Development

This paper critically evaluates the recent movement in development economics towards the use of randomized controlled trials (RCTs). It opposes this movement and advocates the use of theoretical and statistical methods.There is currently much debate about the effectiveness of foreign aid and about what kind of projects can engender economic development. Skepticism about the ability of econometric analysis to resolve these issues, and that of development agencies to learn from their own experience had led to the move towards RCTs .When RCTs are not possible, the movement advocates quasi-randomization through instrumental variable (IV) techniques or natural experiments.The paper states that these new methods are unlikely to recover quantities that are useful for policy or understanding. It offers the following reasons:

• RCTs are unable to handle exogeneity and heterogeneity issues;
• Actual randomization faces similar problems as quasi-randomization;
• Experiments have no special ability to produce more credible knowledge;
• IV methods and RCT-based evaluation of projects is unlikely to lead to scientific progress in the understanding of economic development.