The new nobel prizes and Colombia

The last Nobel Prizes in Economics were awarded to Professors David Card, of the University of California, Berkeley; Joshua Angrist, from MIT, and Guido Imbens, from Stanford University, for contributions that have transformed the empirical methods to analyze and specify the differences between the correlations and causalities of different phenomena. What is the first chicken or the egg? For example, a simple correlation between quality and years of education of children and the subsequent level of income of workers is not enough to assess the real impact of human capital on wages. To specify these effects, Angrist and Imbens argue that it is necessary to evaluate rare or peculiar situations that produce exogenous changes in quality or years of education, which can then be used to identify their effect. Thus, Angrist and a group of colleagues analyzed the effects of the PACES program, established in 1991, during the government of César Gaviria, which gave some 125,000 children partial scholarships to study in private schools. The study found that three years later, scholarship recipients performed significantly better than those who did not.

In another work, Professor Angrist and Colombian economist Adriana Kugler, now the United States representative on the World Bank’s board, studied the effects of the exogenous increase in prices and coca cultivation in Colombia around 1994, after it began. the interdiction of the “air bridge” of coca paste, which came from Peru and Bolivia to laboratories in our country. While coca production fell in Bolivia and Peru and increased in Colombia, the authors found that this change generated very few economic gains, while violence soared in areas where the area planted with coca grew. The authors conclude that these results are consistent with the view according to which violence in Colombia is fueled by the financial opportunities generated by coca and that the combatants’ search for income limits the economic improvements of this illicit business.

For their part, Professor Card and Alan Krueger, who died in 2019 and if he were alive would have undoubtedly also won the Nobel, analyzed the impact of an increase in the minimum hourly wage on the fast food industry in the state of New Jersey in 1992, a study that used the eastern part of neighboring Pennsylvania as a control group. The authors found a minimal negative effect on employment, a result that is not necessarily extrapolated to other contexts. For example, while in a labor market where informality is zero, a higher minimum wage would not have major effects on employment, what benefit could the 10 million Colombians who today earn less than the minimum wage have, if it increases by 10%? The answer is simply none and, on the contrary, there would surely be even more informality. The contributions of the new Nobel Prizes are very important for the advancement of economics as a social science, especially for a country like Colombia, as long as we take into account the contexts in which the different phenomena are studied. What is good for Denmark is not necessarily good for Cundinamarca.

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The new nobel prizes and Colombia

Hank Gilbert