Evidence-basedpolicymakinginthe

tropics:aredevelopingcountries

different?

StephenHowes,AshleeBetteridge,

LawrenceSauseandLhawangUgyel

Abstract

Evidence-basedpolicymakinghasbeenadvocatedasmuch,ifnotmore,fordevelopingasdevelopedcountries.However,verylittleattentionhasbeengiventotheconditionsorprerequisitesforevidence-basedpolicymaking,andwhethertheseareingeneralmoreorlesslikelytoholdindevelopingcountries.Wearguethatanenvironmentconducivetoevidence-basedpolicymakingisoneinwhichtherearestrongincentivesforgoodpoliciestobeadopted,capableinstitutionstoimplementthem,awiderangeofdomainswithinwhichgoodpolicycanbeadopted,andareadysupplyofwell-developedpolicyproposals.Basedonthedevelopmentliterature,ourownexperience,andthecomparisonoftwocountries,AustraliaandPapuaNewGuinea,weconcludethattheseconditionsareallmorelikelytoexistindevelopedthandevelopingcountries.Developingcountriesontheotherhandhavetheadvantageofforeignaid.Muchforeignaidisdedicatedtothepurposeoffacilitatingevidence-basedpolicymaking.Butwearguethatatbestthisisapartialcompensationfortheotherproblemsfacedbydevelopingcountriesinstrivingtobasetheirpoliciesmorefirmlyonsoundevidence.Whilethispaperisnotacounselfordespair,itisacallforrealism.Strengtheninginstitutionsorthestructureoftheeconomyarelong-termendeavours.Butthedearthoffundingforresearchandteachingisaconstraintthatcanmorereadilybelifted,especiallywithsupportfromdonors.

DevelopmentPolicyCentreDiscussionPaper59

July2017

SERIESISSN2206-303X

Evidence-basedpolicymakinginthetropics:are

developingcountriesdifferent?

StephenHowes

AshleeBetteridge

LawrenceSause

LhawangUgyel

ProfessorStephenHowesistheDirectorandAshleeBetteridgeisProgram

ManageroftheDevelopmentPolicyCentre,CrawfordSchoolofPublicPolicy,

AustralianNationalUniversity.DrLawrenceSauseisaSeniorLecturerandDr

LhawangUgyelisaVisitingLecturerinthePublicPolicyDivisionintheSchoolof

BusinessandPublicPolicy,UniversityofPapuaNewGuinea.1

Howes,S,Betteridge,A,Sause,L&Ugyel,L2017“Evidence-basedpolicy

makinginthetropics:aredevelopingcountriesdifferent?”Development

PolicyCentreDiscussionPaper#59,CrawfordSchoolofPublicPolicy,The

AustralianNationalUniversity,Canberra.

TheDevelopmentPolicyCentreisaresearchunitattheCrawfordSchoolof

PublicPolicy,TheAustralianNationalUniversity.Thediscussionpaperseriesis

intendedtofacilitateacademicandpolicydiscussion.Useanddisseminationof

thisdiscussionpaperisencouraged;however,reproducedcopiesmaynotbe

usedforcommercialpurposes.

Theviewsexpressedindiscussionpapersarethoseoftheauthorsandshould

notbeattributedtoanyorganisationwithwhichtheauthorsmightbeaffiliated.

FormoreinformationontheDevelopmentPolicyCentre,visit

http://devpolicy.anu.edu.au

1Emailforcorrespondence:stephen.howes@anu.edu.au.ThispaperiswrittentobeachapterinaforthcomingbookonpublicpolicyeditedbyProfessorRobertBreunigandMarkFabianofCrawfordSchoolofPublicPolicy,ANU.

1

Introduction

Evidence-basedpolicymaking,whichthisvolumeseekstopromote,isasimportantfor

poorcountriesasforrichones,perhapsevenmoreso.Butcanevidence-basedpolicy

makingbemadetoworkinpoorcountries?Whatspecialchallengesdosuchcountries

faceinformulatingandimplementingevidence-basedpolicy?

Australia’sProductivityCommissiondefinesevidence-basedpolicymakingas‘aprocess

thattransparentlyusesrigorousandtestedevidenceinthedesign,implementationand

refinementofpolicytomeetdesignatedpolicyobjectives’(ProductivityCommission,

2009).The“theoryofchange”behindevidence-basedpolicyrunssomethinglikeas

follows:policymakingsuffersfromalackofgood,substantiatedproposals;therefore,if

wecanimprovethequantityandqualityofpolicyproposalswewillimprovethequality

ofpolicies.

Thisargumentseemsreasonable,butincomplete.Onecanthinkofnumerous

constraintsontheadoptionofgoodpolicies,ofwhichascarcityofgoodproposalsis

onlyone.Thoseinapositiontomakegoodpolicymaylacktheincentivetodoso.And

evenifthesupplyofproposalsisthebindingconstraint,relaxingthatconstraintmight

bedifficult.Thesearetheissuesweexploreinthispaper.

Intheliterature,evidence-basedpolicymakinghasbeenadvocatedasmuch,ifnot

more,fordevelopingasdevelopedcountries.Amongitschampionshavebeen

multilateralinstitutionssuchastheWorldBank,whichareactiveindeveloping

countries.Aspecialareaoffocushasbeenpolicyevaluation,withthepromotionof

randomizedcontroltrialsasatoolthatcouldbetransformationalfordevelopment

policy(DufloandKremer,2008).

However,verylittleattentionhasbeengiventotheconditionsorprerequisitesfor

evidence-basedpolicymaking,andwhethertheseareingeneralmoreorlesslikelyto

holdindevelopingcountries.Ourattempttoexaminethechallengesfacingevidence-

basedpolicymakingindevelopingcountriesdrawsonthedevelopmentliterature,on

ourownexperience,and,inparticularandforconcreteness,oncomparisonsbetween

AustraliaandPapuaNewGuinea(PNG),twocountriestheauthorscollectivelyknow

2

well.Thesetwoneighboursmakeforusefulcomparisonsastheyare,despitetheir

geographicalproximity,verydifferent.Ifwerankallcountriesoftheworldforwhich

dataisavailable,wecanseethatAustraliaisacountryinwhichthemortalityrateis

verylowandincomepercapitaveryhigh.InPNGthissituationisreversed(Figure1).

Putsimplybutaccurately,AustraliaisadevelopedorrichcountryandPNGisa

developingorpoorcountry.

Figure1:InfantmortalityrateandGNIpercapita,AustraliaandPNGcompared

withothernationsoftheworld

Sourcesandnotes:WorldDevelopmentIndicators.Inthisandsubsequentgraphs,PNGisrepresentedbytheredline;

Australiabytheyellowone.

Thetwocountriesarealsoondifferentgrowthtrajectories.PapuaNewGuineaisa

resourcedependenteconomy,and,forsucheconomies,GDPcanbeaparticularly

misleadingindicatorofeconomicwelfare.Abetterindicatorisnon-resourceGDP,that

is,thedomesticoutputofthenon-miningandnon-petroleumsectors.(Theargumentis

thatwhateverbenefitsofminingandpetroleumprojectsarecapturedbyPNGare

reflectedinthenon-resourcesectorthroughspillovereffects,inparticularconstruction

andgovernmentrevenue.)Non-resourceGDPpercapitaisaboutthesametodayinPNG

3

asitwasshortlyafterindependence,in1980.Bycontrast,Australia’sGDPpercapitais

almosttwiceashighnowasitwasthen.

Figure2:IncomepercapitainAustraliaandPNG

Sourceandnotes:AustraliandatafromWorldDevelopmentIndicators;PNGdatacompiledbyPaulFlanaganfrom

varioussources.Datainconstant,localcurrencyprices.AustraliandataisGDPpercapitaandPNGdataisnon-resource

GDPpercapita(whichisappropriategiventhelargeshareoftheresourcessectorinthePNGeconomy).

Ofcourse,oneshouldbewaryofgeneralizationsbasedoncomparisonsbetweentwo

countriesoreventwocategoriesofcountries.Developingcountriesdifferfromeach

other,andinmanycasesitisbettertothinkofcountriesasfacingvariousdegreesof

challenge,ratherthaneitherfacingachallengeornot.Nevertheless,wedothink

developingcountriesaredifferent,andthatcarefulscrutinyofthechallengestheyface

whenitcomestoevidence-basedpolicymakingwillpaydividends.

Ourdiscussionandthestructureofourpaperarebasedaroundfourdifferencesrelating

toinstitutions,policyoptions,researchcapacityandforeignaid.

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InstitutionsAsdefinedbyDouglasNorth,institutionsare‘therulesofthegameinasocietyor,more

formally,arethehumanlydevisedconstraintsthatshapehumaninteraction’(North,

1990,p.3).Ingeneral,poorcountrieshaveweakandimmatureinstitutions.Whilewe

wouldsubscribetothenoworthodoxviewthatthequalityofinstitutionsisa,ifnotthe,

criticaldeterminantofeconomicperformance(AcemogluandRobinson,2012),allthat

isneededforthepurposesofthissectionisanacceptanceofthestrongcorrelation

betweenthetwo:richercountriesgenerallyhavebetterinstitutions.

WeillustratethisstylizedfactusingourcomparisonofAustraliaandPNG,and2015

WorldGovernanceIndicatorsdataon‘governmenteffectiveness’.Australiaisrankedin

thetop10percentofcountrieswhenitcomestogovernmenteffectiveness;PNGinthe

bottom30percent.

Figure3:Percentilerankingforgovernmenteffectiveness,AustraliaandPNG

(higherisbetter)

Source:WorldGovernanceIndicators

92.3

29.8

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20

40

60

80

100

AUS PNG

5

Moregenerally,Figure4showsthestrongcross-countrycorrelationbetween

governmenteffectivenessandpercapitaincome.

Figure4:Thecorrelationacrosscountriesbetweengovernmenteffectivenessand

incomepercapita

Sourceandnotes:WorldDevelopmentIndicators.Thereddottedlineisatrendline.Thegovernmenteffectivenessscoreis

apercentileranking.

Thepresenceofweakinstitutionsmakesitlesslikelythatgoodpolicieswillbeadopted,

evenifevidenceisfoundintheirfavour.Thiscanbeunderstoodinpoliticalterms.

Institutionsareanoutcomeofpolitics(AcemogluandRobinson,2012);andinstitutions

arethereforeweakifpoliticalincentivesarenotwell-alignedwiththewelfareofthe

population.Ifthereareonlyweakincentivestoimprovepolicies,thenlittle

improvementwillhappen.2Thebindingconstraintwillnotbealackofsolidevidence,

butalackofwilltotakethatevidenceanditsimplicationsseriously.Forexample,if

2Thisdiscussionraisestheinterestingquestionofthedifferencebetweenpoliciesandinstitutions.Ifinstitutionscoveralltherulesofthegame,thenpoliciesaresimplyasub-setofinstitutions.Butinstitutionsareperhapsmoresensiblythoughtofasthefundamentalrulesofasociety.Policiescanberegardedasrulesthatcanbechangedholdinginstitutionsconstant.Forexample,givingaCentralBankindependenceisaninstitutionalchange.Ifthepolicyrateofinterestischanged–bytheindependentCentralBankoranyotherpartofgovernment–thatisapolicychange.

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core2015

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6

politicsareclientelisticandpoliticiansarethusmoreinterestedinprovidingprivate

goodstotheirsupporterratherthanpublicgoodstoallcitizens,thentherewillbelittle

interestinproposalstofocusmoreonpublicgoods,andevenlessonhowtosupply

publicgoodsmoreefficiently.Suchresearch,andtherecommendationsbasedonthem,

mightbeliterallyregardedasmerely“academic”.

Anotherwaytothinkaboutthisproblemisthatweakinstitutionsmanifestthemselves

inlimitedcapacity.Indeed,thisiswhatthegovernmenteffectivenessmetric,graphed

above,triestomeasure.Limitedcapacitymeansthatgovernmentsstruggletoabsorb

goodresearchandimplementpolicy.Ofcourse,thesetwoargumentsconvergesince

limitedcapacityisitselfasymptomofapoliticsthatgiveslittleweighttodevelopment

objectives.Sause(2008)hasinvestigated“thestateofpolicyadvisorycapacity”inPNG’s

centralgovernmentagencies.Hefinds“pervasiveandsystematic”problemswhichlimit

thiscapacity,arisingfrom“avarietyofinterlocking(andofteninterwoven)problems

fromboththepoliticalandtheadministrativeandorganisationaldimensionswithin

whichpolicyadviceisdevelopedanddelivered.”(Sause,2008,Abstract).

Ifinstitutionsaresoimportant,itwouldseemobvioustofocusonimprovingthem.

Indeed,atfirst,itmightseemlikeanadvantagefromareformperspectivetobeina

countrywithweakinstitutionsasitgivesrisetothepossibilityofrapidcatchup.Justas

poorcountriesdon’tneedtodeveloptheirowntechnologyinordertohaveproductivity

growth—theycaninsteadimportthetechnologyfromadvancedeconomies—soit

mightbethoughtthatpoorcountriescanshort-cutthearduousprocessofdeveloping

goodinstitutionsbyimportinginstitutionsfromadvancedeconomies.Shouldnot

researchersthenfocustheireffortsoninstitutionaldesign?Unfortunately,thislineof

argument,whilesuperficiallyconvincing,neglectsthreefactorswhichmake

institutionalimprovementfarmoredifficultthantechnologicalcatch-up.

First,itisdifficulttofindconvincingevidenceinfavourofaparticularinstitutionalset

up.Institutionsthatworkwellinonecountrymightnotworkwellinanother.AsRodrik

haswritten,‘Itiseasiertolistthefunctionsthatgoodinstitutionsperformthatitisto

describetheshapetheyshouldtake’(2008,p.100).Second,itisnotclearwhich

institutionsmakeadifference;thatis,whicharetheonesthatreallyretardprogress.

Forexample,howmuchofadragongrowthiscorruption?Thisisstillnotsomethingon

7

whichwehaveaconvincing,clear-cutanswer(compareKhan,2004withCamposetal.,

2016).Asaresult,itisnotclearwhichinstitutionsmostneedtobereformedto

promotedevelopment.Third,asalreadynoted,institutionsaretheoutcomeofpolitical

forces.Domesticpoliticalforcesnormallyonlychangeslowlyor,ifabruptly,not

necessarilyinapositivedirection.

Farfrompoorcountriesbeingabletocatch-upquicklyintermsofinstitutions,

internationalevidencesuggeststhatinmanycountriesitisnoteasytoimprove

institutions,evenifweaknessesareglaring,anditisobviouswhatneedstobedone.

Mostpoorcountriesareinwhatiscalleda‘capabilitytrap’;thatis,theirinstitutions

improveonlyglacially,ifatall(Pritchettet.al2010).Moreover,justbecauseinstitutions

ingeneralimproveonlyslowlydoesnotmeantheydonotchangeatall.Indeed,

institutionsindevelopingcountriescanchangequicklyovertime;justnotnecessarilyin

apositivedirection.

PNGandAustraliaprovideagoodexampleofthisintheareaofdecentralization:the

divisionofpowerbetweenprovincialandlocalgovernments.PNGisdividedintoabout

20provinces.Mostprovinces,exceptforthesmallest,aredividedintotwoormore

districts,foratotalof89districts.PNG’sparliamentismadeupofrepresentativesof

districtsandprovinces.Overtime,notsurprisinglygiventhebalanceofnumbers,power

andfundshaveshiftedfromprovincestodistricts.Inthe2000s,thefocuswason

gettingmorefundstoprovincesthroughprovincialfunctiongrants.Butthisdecade,

therehasbeenamassiveincreaseingrantsandresponsibilitiesdevolvedtothedistrict

level,throughmuchlargerDistrictSupportImprovementProgramgrants.Thisstateof

fluxhasmadeitverydifficulttodevelopaneffectivedecentralizationpolicy.Thepolitics

ofdecentralizationneedtobesettledfirst.Bycontrast,inAustralia,wherelocal

governmentsareunderthecontrolofstategovernments,andarenotalignedwith

electoralboundaries,thedistributionofpowersandfundsbetweenstateandlocal

governmentsiswell-settled.Changesinthisdistributionofdecentralizedpowersin

AustraliawouldbemuchmoredifficulttoachievethaninPNG,but,ontheotherhand,

inAustraliaonehasasolidinstitutionalbaseonwhichrelevantpolicyreformsinvolving

stateandlocalgovernmentscanbeandarepursued.

8

Limitedoptions

Theeconomiesofpoorcountriesaredominatedbytheinformalsector.InPNG,less

than10percentoftheworking-agepopulationisengagedintheformalsector.In

Australia,thefigureisabout60percent(Figure5).

Figure5:TheformalsectorparticipationrateinPNGandAustralia

Sourcesandnotes:ADB2014&AIHW2015.Theformalsectorparticipationratedividesthesizeoftheformalsectorby

thesizeoftheworkingagepopulation.PNGdatafrom2009/10,andAustraliandataabout2014.InAustralia,itis

assumedthateveryoneworkingisintheformalsector.

Cross-countrydataontherelativesizeoftheinformalsectorarehardtocomeby,but

wecanusetheruralpopulationasaproxysincetypicallyruralareasaremore

dominatedbyinformalactivitiesthanurbanones(ILO,2015).InFigure6,weseea

close,negativecorrelationbetweenthevariablesofinterest,inthiscaseinformality(as

proxiedbytheruralpopulationshare)andincomepercapita

0%

10%

20%

30%

40%

50%

60%

70%

PNG Australia

9

Figure6:Thecorrelationacrosscountriesbetweentheruralpopulation

share(aproxyforinformality)andincomepercapita

Source:WorldDevelopmentIndicators.

Therelativeprominenceoftheinformalsectormakesevidence-basedpolicymaking

moredifficultindevelopingcountriesforthesimplereasonthatbydefinitionthe

informalsectorislessundergovernmentcontrolorsubjecttogovernmentreach.In

essence,thegreatershareoftheinformalsectorreducestheoptionsopento

government.Iftherearefewerpolicydecisionsthatcanbemade,thescopeforusing

evidenceisaccordinglyreduced.

Thiscanbeillustratedmoreconcretelyinseveralways.First,thegreatersizeofthe

informalsectoristhefundamentalreasondevelopingcountrieshavealowertax/GDP

ratiothandevelopedones.ThisiscertainlythecaseforPNGandAustralia.Theformer

hasarevenue/GDPratioofabout15percent;forthelatteritisnearly30percent

(Figure7).

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opulationrural2015

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Figure7:Revenue/GDPratiosinPNGandAustralia

Source:PNGbudgetdocuments(2017budgetestimate);AustraliandatafromAustralianGovernment2015andrelates

to2012.

Thepositivecross-correlationbetweentax/GDPandGDPpercapitaisshowninFigure

8.Thecorrelationisquiteweak.Otherfactorsarealsoclearlyimportant.Resource-rich

countriestendtohavehighertax/GDPratios,forexample.

Figure8:Thecorrelationbetweentax/GDPandincomepercapita

Source:WorldDevelopmentIndicators

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PNG Australia

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Whileotherfactorsareimportant,Figure8neverthelessconfirmsthatgovernmentsin

poorcountriesgenerallyhavefewerresourcestoallocatenotonlybecausetheir

economiesarepoorer,butalsobecausetheycanlayclaimtoalessershareofthose

economies.Asaresult,thesegovernmentshavefarfewerresourceswhichcanbe

deployedinresponsetogoodpolicysuggestions.Onemightfindtheevidence,butnot

thefunds.

Thecompositionofgovernmentexpenditureandrevenueisasimportantasitssize.In

general,directtaxesandtransfersaremuchlessimportantindevelopingcountriesthan

theyareindevelopedones.Bastaglietal.(2012)confirmthatdevelopedcountriesdo

onaveragehavemuchhighertax/GDPratios.3Theyalsorevealimportantcompositional

differences.Incometaxesmakeupmorethanhalfthetotaltaxtakeindeveloped

countries,butonlyaquarterorlessinthevariousdeveloping-countryregions.

Ontheexpenditureside,Bastaglietal.(2012)alsoshowthattransfersmakeup15per

centofGDPindevelopedeconomiesbutonlyabout2percentinAsianeconomiesand1

percentinsub-SaharanAfrica.Itisnotthattargetedtransfersareimpossiblein

developingcountries.Proxyindicatorslikealackofconsumerdurablescanbeused,as

inIndiaforexample,toassesswhetherahouseholdispoorandtherebyinstitute

targetedcashorothertransfersprograms.Buttargetedtransfersarecertainlymore

difficulttomakeindevelopingcountries.Forexample,schemesofemployment

insurancearesimplyimpossibletoimplementindevelopingcountries,sinceinformal

employmentisnon-verifiable.

ThecontrastcancertainlybeseeninthecaseofPNGandAustralia.Bothcountrieshave

highlyprogressivedirecttaxsystems.InPNG,however,onlyasmallminorityare

subjecttothedirecttaxsystem,whereasinAustraliavirtuallytheentireworkforceis

covered.Australiaalsohasanextensiveandcomplexsystemofdirecttransfers,

includinguniversal,means-testedagepensions,disabilitybenefits,andunemployment

3Onaverage,developedeconomieshaveatax/GDPratioofjustover35percent.ThefourdevelopingcountryregionsofLatinAmerica,MiddleEastandNorthAfrica,AsiaandPacific,andSub-SaharanAfricaallhaveatax/GDPratioof20percentorless.

12

benefits.FormalsectoremployeesinPNGreceivesuperannuationbenefits,butnoneof

thetransferschemesevidentinAustraliaoperateinPNGatthenationallevel.4

Limitedresearchcapacity

Sofar,wehavelookedatwhatmightbethoughtofasdemandsidefactorshindering

evidence-basedpolicymakingindevelopingcountries:factorsthatreducethe

incentivesforgoodpolicy,andthatreducethepolicyoptionsopentogovernment.In

summary,theargumentofthepapersofaristhat,onthedemandside,poorinstitutions

makeitlesslikelythatgoodpolicysuggestionswillbeimplemented,andalarge

informalsectorreducesthepolicyoptionsopentogovernments.Inthissection,weturn

tosupply-sidefactorsthatmakeevidence-basedpolicymakingmoredifficultto

implement.Heretherelevantstylisedfactisthatuniversitiesandthinktanksin

developingcountriesaregenerallysmallinsizeandoflowquality.

ThecontrastbetweenrichandpoorcountriesinthisregardisshownclearlybyFigure

11,whichcomparespercapitaspendingonuniversityeducationinthetwocountries.

PNGspendsonly$6perpersononuniversityeducation;Australiaspendsmorethan

$1,000.Thisratioofmorethan100:1isfargreaterthantheratioofpercapitaincomes

whichisapproximately15:1.PNGnotonlyputsfarfewerstudentsthroughuniversities

andspendsonlyafifthofwhatAustraliadoesoneachofthem.

4Oneresource-richPNGprovince,NewIreland,operatesitsowncashtransferprogram.

13

Figure11:PercapitaandperstudentuniversityfundinginAustraliaandPNG

Sourcesandnote:Totalspendingforfourstate-owneduniversitiesinPNG(2015actuals)frombudgetdocuments

dividedbyestimatesofthestudentbodyandpopulation.ForAustralia,governmentspendingperstudentandtotal

numberofstudentsfromUniversitiesAustralia(2015),for2015withCensuspopulationestimateforthatyear.

Currentexchangerateused(universitysalariesarelowerinPNG,butthepurchasingpowerofsalariesissimilarif

nothigherinAustralia).

Comparablecross-countrydataontertiaryeducationishardtocomeby.Instead,we

canusetheshareofthelabourforcewithatertiaryeducationasaproxy(Figure12).

Thereisastrongpositivecorrelationbetweentheshareofthelabourforcewitha

tertiaryeducationandincomepercapita.

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Figure12:Thecorrelationacrosscountriesbetweentheshareofthelabourforce

withatertiaryeducation(aproxyforeducationspending)andincomepercapita

Source:WorldDevelopmentIndicators

Asmallershareofspendingontertiaryeducationwouldnotnecessarilybeaproblem

forevidence-basedpolicymakingiftheeducationsectorindevelopingcountrieswas,

althoughsmall,ofhighquality.However,thisisrarelythecase.Thequantityandquality

oftertiaryeducationmovetogether,atleasttoacertainthreshold.Educationspending

perstudentistypicallymuchlowerindevelopingcountriesthanindevelopedones,as

thecomparisonbetweenPNGandAustraliaillustrates(seethesecondgraphinFigure

11above).Partlyasaresultoffewerresources,universitiesindevelopingcountries

haveagreaterfocusonteaching,andalesserfocusonresearch—including,therefore,a

lesserfocusonresearchintopolicyquestions.

Agoodmeasureofthequalityoftertiaryeducationinacountryistherankingofits

universities.Whilethereisnodoubtthattherankingbyqualityofuniversitiesisafar

fromperfectscience,itwouldbeamistaketowriteoffanysuchrankingasa

meaninglessexercise.TwoofthemostpopularandcomprehensiverankingsaretheQS

WorldUniversityRankingsandtheTimesHigherEducationWorldUniversityRankings.

AsTable1belowshows,only4ofthetop100universities(accordingtotheQSWorld

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tagelabo

urfo

rrcewith

tertiaryedu

catio

n

GDPpercapita2012(PPPUSD,currentprices)

15

UniversityRankings)or2(accordingtotheTimesHigherEducationWorldUniversity

Rankings)arelocatedinadevelopingcountry,namely,China.5

Table1:Themostrepresentedcountriesintwotop-100worlduniversity

rankings

Countries QSWorldUniversitiesRankings2016-2017

TimesHigherEducationWorldUniversityRankings

2016-2017

UnitedStates 32 41

UnitedKingdom 18 12

Germany 4 9

TheNetherlands 2 8

Australia 6 6

Japan 5 2

Canada 4 3

China 4 2

HongKong 4 3

Source:Bridgestock2016

Economicsisonedisciplinewidelyregardedascriticalforevidence-basedpolicy

making.AqualitativecomparisonbetweenAustraliaandPNGisusefulinthiscontext.

ThereisonlyoneuniversitywherestudentscanstudyeconomicsinPNG,namelythe

UniversityofPapuaNewGuinea(UPNG).InAustralia,therearedozens.AtUPNG,in

2014,therewereonlytwolecturersintheEconomicsDivision.Thesituationhas

5WhileHongKongispartofChina,itstillfunctionsseparately,andcertainlyinthiscontextisbestthoughtofasadevelopedeconomy,ratherthanaspartofalargerdevelopingcountry.

16

improvedslightlysincethenduetotheprovisionofvisitinglecturersfromThe

AustralianNationalUniversity(ANU)(withfundingfromtheAustralianaidprogram),

butatthetimeofwritingthereareonlyfourlecturersintheEconomicsDivision.Any

oneofthedozensofuniversitiesteachingeconomicsinAustraliawouldhaveastronger

faculty.LittleresearchiscarriedoutbytheUPNGEconomicsDivision,thoughagain

therehasbeensomeimprovementinrecentyearsasaresultoftheANUpartnership.

Ofcourse,universitiesarenottheonlyplacewhereeconomicorpolicy-relatedresearch

iscarriedout.PapuaNewGuineaisfortunatetohavetwothinktanks,theNational

ResearchInstitute(NRI),whichisgovernmentfunded,andtheInstituteofNational

Affairs(INA),whichisfundedbytheprivatesector.BoththeNRIandINAmakea

valuablecontributiontoeconomicresearchinPNG.Buttheyarerelativelysmall

institutions,andthinlystretched.Australiahasamuchmorerobustnetworkofthink

tanks,bothgovernment-funded,suchastheProductivityCommission,andnon-

government-funded,suchastheGrattanInstitute,theCentreforIndependentStudies,

andtheAustraliaInstitute,tonameonlyafew.

Thelimitationspointedtointhissectionnotonlyactasconstraintstothesupplyof

evidenceforpolicy-makingindevelopingcountries.Theyalsolimitcontestability:the

abilityofthinktanksanduniversitiestoquestionofficialwisdom,andsuggestan

alternativenarrative.Thisinturnleadstoagreaterprospectofpolicycaptureofthe

dominantpublicsectorinstitutions,suchasTheTreasuryandtheCentralBank,andan

increasedlikelihoodthatevidence,evenifitisavailabletosupportanalternativepolicy

position,willbeignoredifitispoliticallyinconvenient.PNGhasrecentlyseenmajor

changesinitsexchangerateregimeawayfromafloatingtowardsafixedexchangerate

(IMF2016).Thishasnotgoneunnoticed,butnorhasitbeenaccompaniedbythesortof

livelydebateonewouldexpectifasimilarseismicshiftineconomicpolicyoccurredin,

say,Australia.

17

Foreignaid

Sofarwehaveconsideredvariousdisadvantagesthatdevelopingcountrieshaveto

contendwithinrelationtopursuingthedesideratumofevidence-basedpolicymaking.

Butdevelopingcountriesalsohaveanadvantage.Theyreceiveforeignaid,andmuch

foreignaidisintendedtohelpwithbetterpolicymaking.Towhatextentdoesthis

actuallycompensatefortheotherdifficulties?

Foreignaidisstillsignificantforlowincomeand,toalesserextent,lower-middle

incomecountries.In2012,lowincomecountriesonaveragereceivedaidworth9.9per

centoftheirGDP.Lower-middleincomecountriesreceivedaidworthonaverage0.8

percentoftheirGDP.Forupper-middleincomecountries,however,theratiowasonly

0.1percent.Developedcountriesreceivenoaid,thoughtheydooccasionallyreceive

internationalassistancefollowingdisastersandfinancialcrises.PNGreceivesforeign

aidworthabout5percentofitsGDP.Wecancertainlyconcludethataidisasignificant

volumeoffundsforthepoorerofthedevelopingcountries,thoughitalsoneedstobe

recalledthatmostoftheworld’scountriesarenowadaysmiddleratherthanlow

income.

Aidisprovidedforawholevarietyofreasonsandcauses.Aidisgivenasdisasterrelief,

foodaid,budgetsupportanddebtrelief.Mostaidisgiventofundsectoralprojects,

whethertobuildanewroad,ortostrengthenteachertraining.

Anotherimportantformofaidistechnicalassistanceorcooperation.Onaverage,about

onequarterofallaidisgivenastechnicalassistance.Australiaingeneralismore

focusedontechnicalassistancethanthis.Attimes,asmuchas60percentofAustralian

aidhasbeengivenastechnicalassistance,withthecurrentfiguresittingaround40per

cent.Technicalassistanceisitselfgivenforarangeofreasons,butingeneralitisgiven

tostrengtheninstitutionsandimprovepolicymaking.Indeed,technicalassistancecan

beviewedasthepublicsectorequivalentofforeigndirectinvestment.Justasforeign

directinvestmentisatransfermechanismbywhichdevelopingcountriescanaccess

advancedindustrialtechnology,sotechnicalassistanceisamechanismbywhich

developingcountriescanaccessdeveloped-countrypublic-sectorprocessesand

18

reforms.Perhapsthemosttypicaluseoftechnicalassistanceistheprovisionofadvisers

togovernmentdepartmentstoimprovecapacityforpolicyreformandimplementation.

Anotherformofaidexplicitlydirectedatimprovingpolicyisbudgetsupportgivenon

thebasisofreformconditions.Lessthantenpercentofaidisgivenasbudgetsupport.

Evaluationsofbudgetsupportvarywidely,butthemorepositiveonesclaimonlya

modestroleforit(Mosleyetal.1995).

Towhatextentisaidabletocompensateforthedisadvantagesthatdeveloping

countriesface?Someclaimthataidinfactisanegativeforthecountriesthatreceiveit.

AngusDeatonamongothersclaimsthataidunderminesinstitutions(Deaton2013).

Evidenceforthisclaimislimitedthough,andinfactthereisevidenceintheopposite

direction(summarizedbyWood,2016).

Whileitseemsunreasonabletoclaimthataidinfactmakesthingsworse,howmuch

doesitmakeitbetter?Therearecertainlypositiveexamplesofpolicyandinstitutional

transfer.Oneofthemisprovidedinthisbook:income-contingentloans.However,in

general,thetrackrecordofusingaidtopromotereformsislimitedifnotdisappointing

(Andrews,2013).

First,reformsaredeterminedbydomesticpolitics,andtheinfluenceofoutsiders,even

cashed-upoutsiders,isnormallylimited.

Second,OECDinstitutionsandpoliciesmaynotingeneralbeappropriatefordeveloping

countries.ThepracticethatEvans(2004)referstoas“institutionalmonocropping”may

besub-optimal.

Third,evenwhencountriesadopttherecommendedreforms,theadoptionmightbe

onlyskindeep,orinformratherthansubstance.Pritchettetal.(2010)highlightthe

phenomenonof“isomorphicmimicry”bywhichdevelopingcountriespretendtoadopt

developed-countryreformstokeepdonorshappy,butinwhichtheirunderlying

institutionsinfactdonotchange.TheWorldBank(2017,p.92)showsthatthegap

betweenformalrulesandactualpracticeisgreaterinpoorercountries.Forexample,

manydevelopingcountrieshaveadoptedanti-corruptioninstitutionswithoutmakinga

dentonthelevelofnationalcorruption(Kuria,2016).

19

Fourth,theliteraturerecommends,asaresultofthedisappointmentsassociatedwith

foreignaid,thatdonorspromotehome-grown,iterativesolutions(Andrewsetal.,

2017).Theyalsorecommendthattheylookforopportunitiesforpolitically-feasible,

incrementalreform—amorerealisticoptioncomparedtoseekingwider-ranging

institutionalchange(TheAsiaFoundation2011).Theseideassoundpromising,butthey

alsosuggestthattheroleofaidislimited,andthatatbestitisapartialratherthanfull

compensationfortheotherdifficultiesdevelopingcountriesfaceinimplementing

evidence-basedpolicy.

ThehistoryofaidtoPNGprovidesarichrangeofexperiencesthatilluminatethe

limitationsofaidinpromotingpolicyandinstitutionalreform.Aninterestingexampleis

theNationalRoadAuthority(NRA).Itwassetuptosecurefundingforroad

maintenancewithmuchencouragementandassistancefromtheAsianDevelopment

Bank.Sinceitscreationin2003,however,theNRAhasneverbeenfundedmorethan

tokenistically.Aminisculetaxof0.04Kina(about$A0.02)perlitreofpetrolprovides

nexttonofundingforit($AUD7millionin2014or1.5percentofallgovernment

spendingonroadmaintenanceandrehabilitation),andmakesitimpossibleforittoplay

anythingresemblingtheroleintendedforit(Dornan,2014,2016).

AnotherinterestingexampleistheSovereignWealthFund(SWF),whichPNGfinally

establishedin2015afterhavingagreedwithAustraliatoestablishitin2009andhaving

subsequentlyreceivedconsiderableassistancetodoso.TheestablishmentoftheSWF

wascontroversial,andPNGtooksolongtosetitupthat,bythetimeitdid,itsresource

boomwaswellandtrulyover.PerhapstheSWFwillbeofassistanceasasavings

mechanismnexttimethecountryhasaresourceboom,butsignificantquestionsraised

aboutitsdesign(Osborne2015)makeeventhisuncertain.

Amorepositiveexampleistheprovincialfunctiongrantsmentionedearlier.This

schemewasalsoestablishedwithAustralianassistanceandencouragement.The

increasedfundsthathaveflowntoPNG’sprovincesthroughtheseredesignedgrantsare

generallyreviewedasresponsivetoPNG’sneeds.Theestablishmentoftherequisite

formulaewasbasedonsignificantdomesticinput,ratherthanasimpletransplantingof

bestpractice(ODE2009).Nevertheless,evenforthispositiveexample,thereistherisk

thatgoodpolicywillbetrumpedbyinstitutionalchange.Theearlier-notedshiftin

20

PNG’sapproachtodecentralization,withitsmuchgreateremphasisondistrictsrather

thanprovinces,hasalreadyresultedinadwarfingoftheprovincialfunctiongrantsby

newdistrictgrants,andraisesseriousquestionsaboutthelong-termviabilityofthe

provincialgrants.

Conclusion

Anenvironmentconducivetoevidence-basedpolicymakingisoneinwhichthereare

strongincentivesforgoodpoliciestobeadopted,capableinstitutionstoimplement

them,awiderangeofdomainswithinwhichgoodpolicycanbeadopted,andaready

supplyofwell-developedpolicyproposals.Theseconditionsareallmorelikelytoexist

indevelopedthandevelopingcountries.Developingcountriesontheotherhandhave

theadvantageofforeignaid.Muchforeignaidisdedicatedtothepurposeoffacilitating

evidence-basedpolicymaking.Butatbestthisisapartialcompensationfortheother

problemsfacedbydevelopingcountriesinstrivingtobasetheirpoliciesmorefirmlyon

soundevidence.

Thisisnotacounselfordespair.Oneofthemostimportantstylisedfactsof

developmentisthe“growthtriangle”,whichshowsthatwhiledevelopedcountriesgrow

atslow,steadyratesoverdecades,developingcountriesshowmuchmorevariation,

withtheextentofvariationgrowingthepoorerthecountrieswereatthestartofthe

periodofanalysis(Jones&Romer2010).Mostdevelopingcountrieshavethepotential

forrapidgrowthbasedontechnologicalcatch-up,butonlysomeofthemareableto

realisethatpotential.Thosethatdorealisethatpotentialareingeneralthosewithgood

institutions,oratleastthosethathaveapoliticaldynamicthatsupportsthe

developmentofbetterinstitutions.Astheydevelop,theconstraintsaroundevidence-

basedpolicymakingareweakened,theirinstitutionsimprove(orwerealreadygood

enoughtostartwith),theireconomiesformalise,wideningthegovernment’soptions,

andtheyhavemorefundstospendonuniversitiesandthinktank.Clearlynotall

countriesfindthemselvesinsuchavirtuouscircle.Thoseexcludedfromitarethose

withpoorinstitutionsandwithoutapoliticaldynamicthatwillimproveinstitutional

qualityovertime.Implementingevidence-basedpolicymakingisatoughaskinsuch

countries.

21

Whilethispaperisnotacounselfordespair,itisacallforrealism.Therearenoeasy

answers,andevidence-basedpolicymakingofcourseremainsanadmirableaspiration.

Itjustmaybealongwayaway.

Whatcanbedonetopromoteevidence-basedpolicymakinginpoorcountriesgiventhe

constraintsonthem?OnepromisingexampleinthisregardistheAfricanEconomic

ResearchConsortium.JimAdams,formerWorldBankVicePresident,haswrittenas

followsconcerningtheAERC:

Inthemid-1980swhenthecallforstructuraladjustmentwasatitspeakin

Africa,aclearsenseemergedthattoomuchofthedebateonreformand

adjustmentwasdominatedbydonors.Thelocalcapacityinvolvedwasbothtoo

smallandoflimiteddepth.Theneartotalabsenceofsolideconomic

analysisemergingfromwithinthecontinentwasanobviousgaprequiring

action.Therewasaparallelconcernaboutthequalityoftheeconomictraining

withintheregion.Indirectresponse,aneffortwasledbyanumberofdonorsto

putinplacesupportfordevelopinganetworkofqualifiedpolicy-focused

economists.

CalledtheAfricanEconomicResearchConsortium(AERC),itbeganoperationsin

1988.Fromitsinitiation,theAERCincludedaprogramoffundingandtrainingyoung

economistsintheareaofeconomicpolicy,withastrongfocusonqualityandregular

workshopstoexchangeideas.Today,governmentsacrossAfricaseeAERC-fundedwork

ascentraltotheirpolicy-makingprocesses.Theyarenolongertotallydependenton

outsideresearchersanddonors.AERCgraduatesareincreasinglytakingonsenior

policypositionsacrossAfrica.TheAERCitselfhasexpandedfromtheoriginalthree

countriesinwhichitbegantocovertheentirecontinent.(Adams2013)

Adamsconcludesthat‘TheAERCmodelcan’tbedirectlycopied,butitsaccumulationof

25yearsofsuccessfulexperiencedoesprovidesomeusefulguidancefor…donorson

howtogoaboutthecriticaltaskofbuildingtheeconomiccapacityrequiredtopromote

andsustaineconomicreform’(Adams2013).

Whileeconomicsisimportant,onemightreasonablygeneralisethisadvicetocover

thosedisciplinesrelevanttopublicpolicymorebroadly,includingpoliticalscience,and

22

thestudyofpublicpolicyitself.Ifwewantmoreevidence-basedpolicymakinginthe

tropics,donorsandgovernmentsalikeshoulddomoretosupportevidence-gatherers

byinvestinginlocaluniversitiesandthinktanks.

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