Center for Effective Global Action

This paper serves as a companion paper to the Economic Development and Institutions’ (EDI) White Paper “At the Intersection: A Review of Institutions in Economic Development” (Dal Bó and Finan, 2016). The White Paper reviewed nearly 200 publications from economics and political science on the role of institutions in development, drawing from experimental and quasi-experimental evidence whenever possible. The goal of the White Paper was threefold: (i) to present a framework for reviewing and synthesizing the existing evidence on how legal and political institutions affect development outcomes; (ii) to distill lessons learned from the literature; and (iii) to present open questions in each topic that defined the research frontier at that time. This Green Paper revisits the themes and research priorities identified by the White Paper five years later. The purpose is to assess how the research funded by the EDI program contributes to our knowledge of how institutions affect development, and where the research frontier lies today. Whenever possible, we synthesize lessons across funded studies in cross-cutting analytic themes to identify the mechanisms that underlie observed effects. This paper illustrates the substantial progress we have made in our understanding of the role of institutions in development and growth. While this new evidence sheds light on many of the open questions originally raised in the White Paper, often it also raises new questions and pushes the research frontier forward. It is clear that this is an active area of research where our knowledge should, and hopefully will, continue to evolve over time.

EDI was designed to be a research programme that would impact policy, not tangential to the needs or demands of policy stakeholders. The EDI-RA3 studies that the Center for Effective Global Action (CEGA) at the University of California, Berkeley helped competitively select are responding to decision-maker demand. That is, from the outset, the research projects were chosen and subsequently funded because they were not only technically sound, logistically feasible, and promising to contribute to the evidence base, but also directly relevant to ongoing policy and reform debates. 

To build a research portfolio that could effectively respond to policy needs, CEGA leadership and the RA3 Scientific Committee made careful decisions, such as prioritizing funding for projects with direct government partners. This prioritization was made possible through significant effort from CEGA to crowd-in high quantity and quality of proposals among which to select the portfolio. In the conclusion we discuss both our research funding selection strategy in greater detail, and identify notable commonalities across projects with impacts thus far. For example, we emphasize the value of embedding an experiment within governmental programme implementation. Where possible and successful, this approach seems clearly more likely to achieve direct contributions to policy decisions.

Tax revenue funds the provision of public goods, but poor countries struggle to raise taxes. In fact, as shown in the figure above, low income countries (LICs) raise only half as much tax revenue, as a share of GDP, as high-income countries (HIC). In turn, low tax revenue in developing countries leads to lower public good provision and insufficient anti-poverty programs, also in turn hindering economic growth and citizen welfare. For policymakers in financially constrained countries, it is key to find ways to boost tax compliance by more strategically and efficiently using existing resources. This involves keeping better records to know who governments should be taxing and how much, processing and updating data, and testing different tax collection and audit procedures.

The ability to recruit, elicit effort from, and retain civil servants is a central issue for any government. Poor performance of frontline civil servants (e.g., teachers, health workers, tax collectors) suggests that governments need to find and deploy more effective approaches to improve the delivery of public services that underpin human and economic development. In this brief, we discuss preliminary findings from ongoing impact evaluations that test two types of tools - incentives and information - that policymakers can use to improve the quality of public services delivered to citizens. We will explore how policymakers can leverage incentives to select, motivate, and retain civil servants; and how information and monitoring can be used to motivate both direct employees (i.e., civil servants), and indirect employees (i.e., contractors).

Countries where courts are weak, and rights are poorly enforced, tend to be countries with worse economic outcomes. To better understand the relationship between the functioning of judicial systems and economic growth, Dal Bó and Finan (2020) reviewed available evidence and constructed a framework for understanding the role of institutions in economic development. They note that despite the importance of the courts in resolving disputes, facilitating a healthy business climate, and protecting citizen rights, we have seen very little empirical evidence to show what makes courts function more fairly and quickly. Dal Bó and Finan systematically outlined open questions to encourage researchers to address these gaps. This helped launch the EDI programme as part of a Path-Finding Paper series. The goal of the Economic Development and Institutions (EDI) programme, an investment generously funded by the UK’s Department for International Development (DFID), is to build a body of evidence and insights into the impact of institutional changes on economic growth.

Policymakers interested in improving the productivity and profitability of smallholder farmers in SubSaharan Africa and South Asia need to understand what prevents farmers from adopting technologies and effectively accessing markets. We summarize recent experimental evidence on constraints to agricultural technology adoption among smallholder farmers in these regions. The evidence presented builds from a series of policy insight summaries produced by the Agricultural Technology Adoption Initiative (ATAI). The underlying studies have been selected (and in many cases funded) by ATAI because they provide evidence using randomized controlled trials (RCTs) to understand and improve the low take-up of agricultural technology in the developing world. These summaries have been structured intellectually by the economic constraint they seek to address, and we present here the four constraints that have seen the largest amount of experimental work in recent years: credit and savings; risk; information; and input and output markets. In the sections that follow, we briefly motivate the role of each specific constraint, provide a summary of the recent experimental evidence and key outstanding questions, and work to draw a series of conclusions relevant for agricultural policy and practice.

We present accepted basic arguments on the role of institutions in development and then discuss the corresponding empirical evidence in support (or not) of those arguments. Methodologically, our emphasis is on experimental evidence wherever available, and thematically we focus on political and legal institutions. In the political sphere, we distinguish between rules shaping representation and accountability, and state capacity. In the legal sphere we distinguish between the profile of legally sanctioned rights (such as property rights and the role of informality) and the workings of the judiciary and the quality of enforcement. We distil the lessons learned from the literature and present open questions in each topic, thus highlighting promising avenues for future empirical research.