Thinking Like an Economist: A Developing Country Perspective

-Wahiduddin Mahmud-

This essay examines how economists are trained to look at economic issues differently than others. By using examples, it discusses the distinctive perspectives that can be gained from such economic concepts as counterfactuals, sunk cost or comparative vis-à-vis absolute advantage; it also illustrates how using the logic derived from abstract economic models can help avoid arguments at cross-purposes in public discourses.

The essay argues that, in spite of the attempts at grand narratives through universally applicable theoretical constructs, useful economics is necessarily eclectic, so that the students of economics in developing countries have much to gain by trying to relate textbook theories to their own socio-cultural settings. In doing so, they have the advantage of observing the actual functioning of markets in a whole range of institutional settings, from rural hats and bazars to modern shopping malls. Moreover, some of the recent theoretical advances in economics, such as in the field of incomplete markets and markets with information asymmetry, endogenous growth, game-theoretic models of trust and cooperation, behavioural economics, and the experimental approach to impact evaluation (randomised control trials) are often more readily applicable in the context of less developed countries. There may be unexplored ingredients in these new ideas in explaining why markets function better in some environments than others and why some countries succeed in achieving economic development while others fail.

 

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