Economic Models in Development Economics

Abstract

This chapter explores and evaluates the use of mathematical models in development economics, particularly computable general equilibrium (CGE) models. Such models have become an increasingly important tool of analysis in development economics. They represent an intriguing and powerful device for making predictions about the behavior of complex national economies in response to a variety of kinds of shocks. They are used to evaluate the probable economic consequences of various policy interventions (such as currency devaluation or an increase in food subsidies), as well as to identify the macroeconomic properties of a complex national economy. Such models permit the economist to run simulations of various macroeconomic scenarios. They thus represent the opportunity to conduct “experiments” within economics.¹ And they provide an important basis for policy advice offered to national governments by development consultants and agencies. My perspective in what follows is the philosophy of social science. I will try to identify the criteria of validity and consistency that ought to govern the evaluation of such models, and to question the degree to which we can attach rational confidence in their results.