Economic research plays a very useful role in testing our priors and establishing when widely held beliefs turn out to be false.
Development is full of persistent myths: ideas about how the world works which are widely held but not supported by research.
Evidence highlighted on VoxDev has shown how a number of commonly held ideas have not stood up to the latest research. In this blog, I’ve highlighted ten examples of these myths that didn’t stand up to scrutiny, from migration to cash transfers to corruption.
Myth 1: Brain drain
The idea that international migration is negative for developing countries, depriving them of skilled workers, is captured by the catchy and persistent phrase ‘brain drain’. But an increasing body of evidence shows that, in fact, the opposite is often the case, ‘brain gain’ if you will.
For example, when nurse migration from the Philippines to the US surged, the brain drain hypothesis would lead us to believe that the Philippines suffered, losing key skilled workers. In fact, Paola Abarcar and Caroline Theoharides show that the domestic supply of licensed nurses rose, alongside college attainment. Beyond this, other work has now documented a host of benefits from international migration for the communities which migrants originate from, as covered in this recent podcast.
Myth 2: Cash transfers reduce work
This is a common misconception about the impacts of cash transfers in developing countries. In fact, it’s what Econ 101 tells us to expect. Sarah Baird, David McKenzie and Berk Ozler discuss why developing economies complicate the ‘get more money, buy more leisure’ narrative. And a meta-analysis of 115 studies on unconditional cash transfers backs this up and dispels the myth. Tommaso Crosta, Dean Karlan, Finley Ong, Julius Ruschenpohler and Christopher Udry find that the unconditional cash transfers in their sample, on average, actually encourage people to seek work.
Myth 3: Cash transfers are spent on alcohol/cigarettes
This is another widely cited concern about cash transfers, that is widely contradicted by the data. Maitreesh Ghatak reviews the evidence and finds that worries that people will squander the cash are misplaced. Evidence across studies show no systematic rise in spending on temptation goods.
Myth 4: Microfinance is a silver bullet
It’s been almost twenty years since the Nobel Peace Prize was awarded to Muhammad Yunus and the Grameen Bank for their pioneering role in microfinance. At the time, many saw microfinance as a silver bullet for ending poverty. The idea is simple and appealing. People in poor communities lack access to credit markets, so by making credit available through microfinance, they can borrow, accumulate a lump sum of cash they couldn’t otherwise access, invest it in becoming more productive, and lift themselves out of poverty. Better yet, microfinance companies have a viable business, getting their money back with interest.
The reality turned out to be much less simple, with evidence across a variety of contexts showing that microcredit is not transformative for the average borrower. Seven major RCTs point to modest average impacts. As Jing Cai, Muhammad Meki, and Simon Quinn highlight in their VoxDevLit, despite these findings on the traditional model of microcredit, small average impacts mask important insights, which show that some borrowers do benefit significantly. The key task for research now is innovating on the design of the products offered by microfinance institutions and matching the right clients to the right contracts.
Myth 5: Less intermediation is always better
Intermediaries are often caricatured as economic parasites, who add no value and skim money from both consumers and producers. This leads, in this narrative, to rural farmers getting a lower price on their produce than if they could sell directly at the market.
In reality, middlemen often do much more than simply skim profits: they reduce search costs, expand variety, and bring goods to remote markets. Matthew Grant and Meredith Startz show that, in Nigeria, shortening chains could backfire by shrinking retail presence and harming consumers in small markets. And Meredith Startz recently joined our podcast to discuss the research agenda on intermediation more broadly.
Myth 6: Rural electrification rapidly boosts incomes
The evidence on the impacts of rural electrification certainly pushed back on my priors. I had assumed that improving access to electricity would be a sure-fire way of quickly transforming rural economies, yet a growing body of research has shown this is not the case.
To be clear, this finding is not an argument against electrifying rural areas, but it should set expectations, and it yields important insights on the ‘how’ of rural electrification. Robyn Meeks outlines the key lessons in our VoxDevLit on Electricity Infrastructure. Providing reliable and quality power is key to unlocking impact, as is improving the financial sustainability of utilities.
Myth 7: Laptops = Learning
No, we should not just give kids laptops and expect their grades to improve. A long-term follow up of the now infamous One Laptop per Child programme found no positive impacts on educational outcomes.
This is an interesting example of how ‘sticky’ these myths can be, driving policy decisions long after the evidence has provided other solutions that actually work. For example, Stefan Dercon wrote about the decision to ignore ‘what works’ and provide laptops to children in Kenya, and reflects on where this leaves researchers trying to improve policy.
For those interested in effectively using technology to improve learning, stay tuned for our forthcoming VoxDevLit on Educational Technology by Abhijeet Singh. Sign up to our newsletter to be notified when it's released.
Myth 8. Corruption ‘greases the wheels’
There is a popular conception that corruption can grease the wheels of development, by speeding up bureaucratic processes, and actually improve economic growth by allowing businesses to skirt inefficient regulations.
In this video, Emanuele Colonnelli describes his work in Brazil, which tracks down firms five years after anti-corruption audits. He finds that engaging in corruption had actually been holding back firms, which grew faster after they had been exposed by the government.
Myth 9. Improving working conditions hurts profits
Working conditions are notoriously poor at many firms in developing countries. These dangerous workplaces are often justified in the name of productivity, but a growing body of evidence shows that this is a fallacy.
Achyuta Adhvaryu joined our podcast to discuss his J-PAL Policy Insight, which summarises the takeaways from a growing body of research, including a number of RCTs, which show that improving working conditions not only benefits workers, but can also enhance firm productivity.
Myth 10. Industrial policy inevitably misallocates
A common argument against industrial policy is that it’s impossible for governments to ‘pick winners’, so this type of policy inevitably misallocates.
Tristan Reed outlines how export promotion strategies have, in practice, coordinated public inputs successfully and helped sectors grow. This approach does not involve picking specific firms, but rather targeting industries in the export sector that have achieved scale or show good growth potential. While there are numerous difficulties with getting this right, effective targeting is certainly possible, and can be particularly valuable for developing countries.
Why do myths persist?
As Ugo Gentilini highlighted on our podcast about the history of cash transfers, some economic debates have been stuck on the same arguments for millennia.
Research is only the first step in dispelling myths. Over time, ideas become ingrained in the minds of policymakers, and much more work is needed to understand the entry points for shifting policy debates. And it's not a fair fight. While it's much easier to start with a compelling and 'cherry-pick' facts that support your narrative, starting at the evidence is more challenging.