India-born Abhijit Banerji shares the 2019 Nobel Prize in Economic Sciences with his wife Esther Duflo and the American Michel Kremer

(By) Dr Surjit Singh Bhatti, Guru Nanak Dev University, Amritsar

The 2019 Sverige Riksbank Prize in Economic Sciences in the Memory of Alfred Nobel was awarded jointly to Dr Abhijit V, Banerjee, his wife Dr Esther Duflo (both of MIT, USA), and Dr Michael Kremer (of Harvard University, Cambridge, USA),

“for their experimental approach to alleviating global poverty”.

Research carried out by them has helped to fight global poverty during the last two decades. Their new approach has transformed economic development processes in many countries. The value of their work can be appreciated from the fact that today, about a billion people throughout the world somehow survive on abysmally low incomes.  Around five million children still die of diseases that could be prevented or cured without expensive treatments. Of all the children in the schools, at least half end-up as drop-outs for economic reasons.

A new approach to fight global poverty was designed by these scientists. This involves tackling the problem by addressing its smaller, more manageable aspects. Their most cost-effective interventions were directed to improving the most neglected  educational outcomes of the children and focusing on their health. For this they designed experiments among the poorest people who are most affected. In the mid-90s, Michael Kremer and his colleagues obtained improved school results in western Kenya. Abhijit Banerjee and Esther Duflo  performed similar studies of other poverty-related issues in other countries. Their methods in development economics, improved the fight against poverty.  Millions of children have benefitted from programs of remedial tutoring in schools and the subsidies for preventive healthcare in many countries. These are programs with potential to improve the lives of the poor people around the world.  

Abhijit Banerjee, born 1961 in Mumbai (India.), Ph.D. in 1988 from Harvard University, is the Ford Foundation International Professor of Economics at Massachusetts Institute of Technology (MIT). He was educated at the University of Calcutta, Jawaharlal Nehru University and Harvard University. He is International Research Fellow of  Kiel Institute and a Fellow of American Academy of Arts and Sciences. In 2011, he was named Foreign Policy magazine’s one of the Top 100 Global Thinkers.  He is author of a number of research publications and three books, including Poor Economics which won the prestigious Goldman Sachs’ Business Book of the Year Award.

Esther Duflo, born 1972 in Paris, France, Ph.D. (1999), is the Professor of Development Economics at MIT. In 2015, Banerjee married the French Esther Duflo. They are the sixth married couple to jointly win a Nobel Prize. Abhijit’s new book, which is co-authored with Esther Duflo, Good Economics for Hard Times, was released in 2019 in India.

Michael Kremer, born 1964 in New York,  Ph.D. 1992 from the Harvard University, is  Professor of Developing Societies at the Harvard University, Cambridge, USA.  He was named as one of Scientific American’s 50 top researchers and was recognized for his work on health and agricultural economics. He supports private investment in vaccine research and the distribution of vaccines among the poor.  He is the Scientific Director of Development Innovation Ventures at USAID.

 These researchers studied the effect of government programs using randomized controlled trials, as in medical research. For example,  many mothers were not bringing their children for vaccination drives. Where mothers were gifted a bag of pulses, they agreed to get their children vaccinated and immunization rate went up. School performance also improved with teaching assistants to help students with special needs. They showed that students learn nothing from additional days at school. Neither did spending on textbooks boost learning. In India, it was found that many children appeared to learn little.  Hardly one in five grade-III students could correctly answer the grade-I math test questions. They argued that efforts to get more children into school is not enough, it must be complemented by reforms to improve quality of schools.  

Representative Research work of Abhijit Banerji, Esther Duflo and Michele Kremer

  • By making basic information available on a real-time basis, to all, Information Technology (IT) can reduce the misuse and theft of public funds.
  • Should police be narrowly focused with high force, or widely-dispersed but of moderate intensity ? A model was used with data from randomized studies on an anti-drunken driving campaign. In each police station, sobriety checkpoints were either rotated in 3 locations or fixed in the best location, and intensity of crackdown was cross-randomized. Rotating checks reduced night accidents by 17%, and deaths by 25%, while fixed checkpoints had no effect.
  • A model in which talented entrepreneurs can access either (i) a diminishing-returns or (ii) a more productive technology with a fixed cost shows that heterogeneity in entrepreneurial ability is important. For most of talented but low-wealth entrepreneurs, it was found that the short-term access to credit can indeed be very helpful to escape from a poverty trap.
  • What is the impact of outsourcing of delivery systems to private sector in a targeted transfer ? Outsourcing of the food delivery reduced operating costs without sacrificing quality. However, the prices people paid were lower only where rules encourage more bidders. Outsourcing and sufficient competition generate more benefits to the poor, compared  to public distribution.
  • What is the impact of microfinance on borrowers? Some of the microfinance institutions increased their clients’ fees in some villages in exchange for a mandatory health insurance policy.  This led to a 30% decline in loan renewal.  But businesses that started after microfinance had entered, enjoyed an increase in non-durable goods consumption. This is consistent with net gains from microfinance.
  • Do programs comprising grant of productive assets with some training, coaching, and savings help the poorest ? It was found that these build up sustainable income for the extremely poor. However,  mere grant of assets and access to a savings account and a deposit service do not  generate similar impacts.
  • Do trained informal Health Providers increase correct health management among the poor? This did not reduce the use of unnecessary medications. Multi-topic medical training offers effective short-run strategy to improve health care provision and complements critical investment in the quality of public health care.  
  • What is the Long-term Impact of Educational Help in the future of Hard-core poor ?

Help was given as asset-transfer and support for 18 months, in India. Evaluations in seven different sites found large persistent and growing positive effects. Their mean monthly consumption increased by 25 %. Positive effects were also found in the assets, income, food security, financial stability, time spent on working, and physical and mental health, unlocking a “poverty trap” .

Abhijit Banerji is the second Indian to get this prestigious award. Earlier, Amartya Kumar Sen, who since 1972 has taught in the UK and the USA, contributed to welfare economics, the social choice theory, economic and social justice, economic theories of famine, decision theory, development economics, public health and true measures of well-being of developing countries. He is at present Professor of Economics and Philosophy at the Harvard and was awarded Nobel Prize in Economic Sciences in 1998 for his work in welfare economics. Both Banerji and Sen are from Bengal.

Esther Duflo is the Second Woman to get the Economics Prize 

The Economics prize was introduced in 1968 by Sweden’s Sverige Riksbank on the bank’s 300th anniversary. This is not one of the five prizes Alfred Nobel had established in his Will in 1895 ( for Physics, Chemistry, Physiology / Medicine, Literature and Peace). However, it is announced along with the other Nobel Prizes and is now awarded at the same ceremony.  So far, two women have received the Economics prize, Elinor Ostrom, who won in 2009, and now Esther Duflo, who won in 2019. The Economics prize is now available to researchers in such subjects as Political science, Psychology, and Sociology also.

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