Good afternoon.
A friend recently uploaded a picture like
this of their child, and strangely enough,
it made me think of my research.
I work with macroeconomic models, that is,
models that try to explain a country's economy
at a nation-wide level. And these photos made
me realise that this is the situation I find
myself in when it comes to modern models.
You see, while these shoes are made for human
feet, they're made for humans in a completely
different stage of development than those
seen wearing them.
I find that one of my favourite quotes from
Joseph Stiglitz puts this most succinctly.
He writes that: "Macroeconomics was developed
in, and for, industrialized countries. Both
theory and policy were concerned with how
monetary and fiscal policy should be used
in industrialized economies to attain full
employment, control inflation and stabilize
economic activity.... Developing countries
often use this corpus of knowledge, without
any significant modification. But it's by
no means clear that applying these theories
to developing countries is either justified
or appropriate."
And yet, this is exactly what we do. We take
these models, that have been built with theories
that describe industrialised economies, and
estimate them to fit developing economies.
And then we use them for the type of policy
analysis and economic predictions that inform
the decisions we make in order to better the
lives of an entire population.
I come from, arguably, the most developed
country in sub-saharan Africa. We have experienced,
including the period of the financial crisis,
an average growth rate of about three per-cent
over the past 13 years. And in that same period
we have seen unemployment average around 27%,
with it currently sitting at roughly 25%.
Modern models find this hard to capture and
explain, and I believe it's because something
fundamental is missing: The shoe just doesn't
fit. It is, indisputably, of vital importance
that the models we use to analyse and make
our policy decisions capture the basic structural
differences that define us as a developing
country in the first place: aspects such as
the informal and agricultural sectors, our
level of education and skills and how all
these influence how our economy functions.
My research will include both a data-driven
study of what impedes and encourages economic
development; as well as the theory-based development
of modified macroeconomic models: All with
the aim of improving the analysis and implementation
of macroeconomic policy in the developing
world.
