Book Review: “Poor Economics” by Abhijit Banerjee and Esther Duflo

by Evan Pye

Abhijit Banerjee and Esther Duflo, both professors of Economics at MIT, released their book Poor Economics in 2011. It is the best book on poverty that I have read, because it relies entirely on evidence that the two authors have discovered themselves through the use of randomized controlled trials (RCTs). They do not rely on sweeping theories of poverty and development, but they point out many other authors who do – Jeffrey Sachs, Paul Collier, and William Easterly in particular. They breakdown many of the myths and theories surrounding poverty alleviation and usually offer an RCT that has either proven them, disproven them, or exposed some previously-unappreciated nuance to them.

Because their background is in economics, they tackle questions of poverty as generalists, covering health, education, finance, entrepreneurship, and governance. The book gives the reader a sense of the holistic nature of poverty as a challenge, and the myriad of solutions that must be understood and implemented in order to combat poverty. I have experience in global health, but it was really good to learn about interventions and strategies to help the poor when it comes to health insurance and financial services. Furthermore, the authors explain what lucrative businesses there are in the developing world if people can figure out how to provide health insurance or provide loans for medium-sized enterprises (the ones too big for microfinance, but too small for traditional banks.)

The book ends with five overarching lessons that I’ll list and describe here.

  1. “The poor often lack critical pieces of information and believe things that are not true”
    1. Ex: benefits of immunizing children, the value of early education, how much fertilizer to use, the easiest way to get infected with HIV, activities of their politicians.
  2. “The poor bear responsibility for too many aspects of their lives”
    1. Ex: Unlike many rich communities, they worry about purifying their water, supplementing their children’s food with nutrients, saving money without a bank system
  3. “There are good reasons that some markets are missing for the poor”
    1. Ex: loans have very high interest rates, no market for health insurance
  4. “Poor countries are not doomed to failure because they are poor”
    1. Ex: There are small interventions that can improve conditions
  5. “Expectations about what people are able or unable to do all too often end up turning into self-fulfilling prophecies”
    1. Children give up in school when they are told they are not smart; fruit sellers don’t pay back debt because they believe they will soon fall back into debt; nurses stop coming to work because no one expects them to be there
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