Comments on “New Structural Economics” by Justin Yifu Lin

Justin Lin wants to make structuralist economics respectable again, and I applaud him for that. He wants to marry structuralism with neoclassical economic reasoning, and I applaud this idea too. So he has two cheers from me. I withhold my third cheer so I can quibble with some of what he writes.The central insight of structuralism is that developing countries are qualitatively different from developed ones. They are not just radially shrunk versions of rich countries. In order to understand the challenges of under-development, you have to understand how the structure of employment and production—in particular the large gaps between the social marginal products of labor in traditional versus modern activities—is determined and how the obstacles that block structural transformation can be overcome.The central insight of neoclassical economics is that people respond to incentives. We need to understand the incentives of, say, teachers to show up for work and impart valuable skills to their students or of entrepreneurs to invest in new economic activities if we are going to have useful things to say to governments about what they ought to do. (And of course, let's not forget that government officials must have the incentive to do the economically “correct” things too.)If we put these two sets of ideas together, we can have a useful development economics, one that does not dismiss the tools of contemporary economic analysis and yet is sensitive to the specific circumstances of developing economies. This is the kind of development …