A Nobel economics prize goes to pioneers in understanding poverty

THE MOST important question in economics is also the hardest: why do some countries stay poor while others grow rich? In 2015, 10% of the world’s population lived on less than $1.90 per day, down from 36% in 1990. But more than 700m people remain in extreme poverty, and the number grows every day in certain parts of the world, in particular sub-Saharan Africa. For their contributions to understanding gaps in development, the better to close them, Abhijit Banerjee, Esther Duflo and Michael Kremer have been awarded this year’s Nobel prize for economics. All three are Americans, though Mr Banerjee and Ms Duflo are immigrants (and married to each other). Ms Duflo is only the second woman to have received the prize and, at 46, the youngest winner ever.

Thirty years ago, economists mostly looked at the big picture. They studied large-scale structural transformations: from rural and agricultural to urban and industrial. Macroeconomists built growth theories around variables such as human capital, then ran cross-country growth regressions to try to measure relationships—for example, between years of schooling and GDP per person. But data were scarce or poor, and the vast number of potentially relevant factors made it hard to be sure what caused what.

In the mid-1990s Mr Kremer, at Harvard University, tried something different....

via The Economist: Finance and economics Business Feeds

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