This paper describes the competing theories in the debate surrounding flows of international capital, particularly with respect to interest rates, and concludes by explaining the distinction between the supply/demand effects. I'm not at all familiar with this topic, so this was one of the most challenging articles for me in this class. However, I did notice that this paper had a similar trend to past papers we've read -- it addressed commonly used, but perhaps misguided, theories and perspectives. This is a common thread to many of the articles we read in this class, and this trend sends an important message to developmental economists. We need to maintain a critical eye toward the theories that we design and implement policy based upon. As one of the past articles brought up, many developmental economists come from a modern, developed, and urban perspective -- one that is very different from many of the countries in which their economic theories would be applied.

This article was fascinating to me because of the evidence offered by the authors. Though they began by curbing the reader's expectations of microfinance, they went on to show that microfinance is more nuanced than we had previously believed. By highlighting the distinctions between three arms of microfinance: credit, savings, and insurance, the authors successfully digested the evidence from the variety of randomized evaluations that they analyze. The article takes our common assumptions about the goals and effective mechanisms of microfinance and walks through each one, offering evidence for and against, ultimately helping the reader understand the most effective mechanism for a wide variety of goals in development. I think the most important conclusion the authors draw is that "a one-size-fits-all product will not bring benefit to the borrowers or profit to the providers." Even the most effective studies they take into consideration are limited in scope. However, instead of viewing this limitation as a setback, I believe that these studies can guide us in developing initial policy at a local level.

Like many of my classmates commented before me, this paper's findings, that successful development strategies vary depending upon the country in which they are implemented, did not surprise me. I read this paper as a further testament (building off our past discussions) to the importance of modeling within economics. Rodrik's evidence illustrates that no one model should rule our way of thinking, and we should not limit ourselves to policies that have worked in the past (particularly when discussing policies to be implemented in places with vastly different cultures and existing infrastructures). It seems to be most effective to first, like any good economist, consider the models, and what they indicate the best policies may be. Following that, we must become better at considering the ways in which different cultures might respond differently and may not fit nicely into the assumptions of the economic models.

After reading the article and my classmates' comments, I want to bring a bit of different perspective on the article to the discussion. I too found Banerjee and Duflo's careful study of the habits of the poor and extremely poor to be very interesting. Their findings in the data certainly challenge assumptions that are made by policy makers, particularly with regard to the degree of choice that the poor have (as Daniel pointed out). Given our discussion last week on the need for models within economics, I understand the authors' angle of looking at a very broad swath of people. However, I do not particularly like the way in which they discussed their data, their sweeping generalizations about the decisions of the poor, or their somewhat degrading tone in the article. Their section headings in the conclusion of the paper, "Why Don't the Poor ____?," struck me as particularly derogatory. Their diction barely avoided demonizing the poor in favor of presenting their data in a way that set apart the poor by reinforcing the concept of a 'culture of poverty'. A topic discussed widely in my Poverty and Human Capabilities 101 class, a 'culture of poverty' implies that there is a uniform belief and value system surrounding all poor, indiscriminate of their differences. The authors challenge many of the common misconceptions regarding the 'culture' shared by people who are impoverished, but they failed to discuss the data in a way that diverged from creating a differently defined 'culture'. I was also disappointed to read their expertly detached discussion of "alcohol and tobacco" as well as "calories." By the way these topics were discussed in this paper, one would think that all people were born with an inherent understanding of addiction and caloric consumption. While straying from many common assumptions in economics, the authors neglected to challenge the assumption of rational decision making with regard to alcohol/tobacco and calories. They made no mention (or if they did, it escaped me) of the possibility that these poor might be addicted to alcohol or tobacco, which would of course impact their consumption habits. Further, they neglected discussing food beyond its caloric value -- the cultural norms surrounding eating, or the ease and effort required in food preparation. They made an offhand mention regarding the possibility of good taste/flavor affecting people's food choices, but this wasn't explored nearly as thoroughly as people's decisions to spend their money on festivals, or other activities that (presumably) bring them enjoyment. Overall, I recognize this paper's significance in reporting the economic trends among impoverished people. I am disappointed, however, that the authors failed to challenge, but some points successfully reinforce, some of the prevailing jargon and manner of discussion surrounding poverty.

Like many of the students before me, I did not read this paper as a critique of Hirschman (which Krugman himself acknowledges in his first sentence) or even a discussion of "high development theory." Rather, the paper focuses on explaining and justifying economics' (the discipline's) infatuation with rigorous modeling -- graphical, mathematical, or narrative -- of its concepts. In short, Krugman is using the "high development theory" as a (narrative) model to clearly and simply illustrate the need for models within economics. As I read this paper, I was struck by its overlapping themes with one of the theories my developmental psychology class recently discussed. In that class, we talked extensively about Piaget's "Cognitive Development Theory," which postulates that in the last stage of development, the "formal operational" stage (which was theorized to begin at age 11 and continue until death), people are constantly creating "schemas." These "schemas" serve as scripts for what is and is not appropriate in certain contexts, and they allow us to not have to actively think about and assess options when we encounter familiar situations. One example "schema" pertinent to W&L is to ask someone what Greek organization they are a part of. Depending upon the answer, we (tend to) draw conclusions or make assumptions about many things: how often the person goes out, whether or not he or she plays a sport, etc. When asked, however, we would of course acknowledge that individuals within a certain Greek organization are all different from one another. Yet it is easier for our brains to deal with the categorizations, "schemas," or, equivalently, models, to which we are accustomed. Krugman states that "the problem is that there is no alternative to models. We all think in simplified models, all the time." Krugman's emphasis in his illustrative examples of mapping Africa and observing weather patterns in a dish-pan, as well as in economics (and in life), is that we must be aware that we are drawing but initial, tentative conclusions from these models. In being "self-conscious" and recognizing that we are "not telling an entirely true story," we can use models to better understand economics without losing sight of the complexity of the real world.