Abstract
This article reviews empirical research on the impact of economic institutions and policies in South Asia. This is a topic which has been intensively analyzed by Japanese social scientists since the early 1960s, based on detailed field surveys and careful examination of various data. These studies in Japan are contrasted with studies published in recently emerging literature in development economics, which use program evaluation methodologies in microeconometrics. In recent literature, due attention is paid to the endogeneity of institutions and policies in order to derive causal inference (e.g., the inference that policy A causes economic outcome B to increase/decrease, not the observation that policy A is correlated with outcome B). To control for the endogeneity bias, a useful methodology is the “difference in difference” (DID), which can be especially effective in the Indian context of “Unity in Diversity”. Because of their federal political system and rich regional histories, individual regions within India experienced heterogeneous impacts when a policy was changed at the national level. We can therefore find several interesting examples of natural experiments. Although the Japanese social scientists shared this perspective, they rarely presented it in a rigorous way using key words such as DID or natural experiments. By explicitly employing these key words and paying more attention to causal inference, studies by Japanese social scientists could contribute more to the emerging empirical literature on South Asian economies. Another area in which Japanese studies have a potential advantage is the careful investigation of whether a seemingly “natural” experiment in South Asia was indeed associated with exogenous variations in policies or institutions. Using the detailed knowledge based on fieldwork that characterizes the Japanese studies, we may be able to show that some of the natural experiments analyzed in the existing literature were not so good as to be regarded as “exogenous”.Finally, the tradition of field-based analysis in Japan could contribute to the analysis of the endogenous formation of economic policies and institutions. Existing recent literature on the causal impact of policies/institutions has a tendency to control the endogeneity of policies and institutions by throwing the endogenous process into a black box. This is a serious problem which should be overcome through future studies.
