Cover Image
close this book Laying the foundation - The institution of knowledge in developing countries
close this folder Part II The institutionalization of science in Latin America
View the document Chapter 3 Institutional development of basic sciences
View the document Chapter 4 Institutional failure or success: variables affecting agricultural research
View the document Chapter 5 Institutional development of research in economics
View the document Chapter 6 Institutional development of educational research
View the document Chapter 7 Industrial research and development institutions in brazil

Chapter 5 Institutional development of research in economics

Miguel Urrutia

This chapter outlines factors affecting the development of economic research within Latin American institutions. It begins by looking at the supply and demand for economic research and exploring factors affecting the performance of economic research institutions. It concludes by offering proposals for institutional development.


Economic Research: Supply and Demand

Although research is always influenced by both supply and demand, in the field of economic research the supply often determines the demand. Highly qualified economists can create a demand for research by promoting the need for it within various social sectors. The demand for economic research is affected by the technical development of the government sector, the development of the university, the degree of democracy in a society, and the competitiveness of its economy.

Much of the demand for economic research is generated by the state, particularly the central bank, because the success of a country's monetary policy requires an understanding of money markets and monetary demand. Although central banks normally conduct most of their research internally, they may also tap external sources for research, such as associations of bankers and manufacturers, as well as universities and independent centres.

Economic research is also undertaken by unions, private banks, universities, and independent institutes and is shaped both by a society's decision-making processes and the openness of its public discussion. Democratic societies may exhibit a greater demand for research; in more authoritarian societies, research may be carried on in secret.

Levels of public-sector spending have a major impact on independent economic research. Central banks usually have sufficient resources and salary flexibility to perform research in-house. However, the intellectual freedom of researchers may be limited by the confidential nature of the research, as well as by the inability of these institutions to publish research critical of their own policies. Also, research topics are generally restricted to monetary and exchange policy. Much of the demand for economic research comes from government ministries, especially those concerned with finance and planning, although ministries of education, health, energy, and trade also need this type of research.

The nature of the demand for research is shaped by a country's decision-making process and the degree to which its decisions are democratically controlled. When a country's decision-making processes require methods to measure economic efficiency - for example, when the feasibility of projects must be assessed - the demand for applied economic research rises. The need for the technical justification of projects by international organizations or by the technocratic budget allocation process also increases the demand for research. Furthermore, the support for those technocratic processes is political and depends on the outcome of a conflict between those who base legitimacy on efficiency and economic growth and those who favour the clientelistic benefits of less rigorous selection criteria for public spending.

The state's research needs are shaped by the ideology of the body requesting the research, as well as by the flexibility of its salary structure and hiring regulations. In general, there is more demand for applied research than theoretical research. Most public-sector research is designed to find practical short-term solutions to urgent problems, although the state may occasionally contract for research of a more theoretical nature.

Another factor that affects public-sector demand for research is the professional training of senior government bureaucrats. If, for example, most of the top officials in a ministry of health are doctors, then less demand would be expected from that sector for economic research. On the other hand, in a country such as Colombia, where most senior government officials have graduate degrees, there is greater appreciation of the need for economic research and, therefore, a greater demand for it. Also, if it is well known that senior officials have a propensity to base their decisions on technical criteria, then unions and private firms may be more inclined to use economic studies to back their demands to government.

An economy's competitiveness also bears directly on the demand for research. In closed economies with a high degree of state intervention, there may be a tendency to use inside information to lessen business uncertainty. In open, competitive economies, economic research proves to be a better method of reducing uncertainty.

Because issues related to university development are so critical to understanding the demand for economic research, especially theoretical research, they must be a focus of our investigation. Top-quality schools of economics create a demand for teachers with research ability because these institutions rely on research to expand. Unfortunately, owing to low salaries and controls on tuition fees, many schools in the region cannot attract full-time professors or support much professional research. The lack of doctoral programs further affects the demand for academic research.

The crisis of the Latin American university has had a particularly adverse impact on theoretical research. Factors such as the financing of higher education and the structure and objectives of the university all shape the demand for theoretical research. For example, if a university's main objective is professional training, then its administrative systems will promote teaching rather than research. When funds are tight, teaching costs are cut by employing part-time and chair professors, who do not usually undertake research. Controlled tuition fees and constraints on public spending have led to such low faculty salaries that it is virtually impossible to retain highly qualified economists within the university.

In the future, all evaluations of institutional development in economic research organizations must consider the characteristics of research demand, the factors affecting the success of research, as well as the capacity of institutions to respond to changes and take advantage of demand niches.

The institutional development of research organizations is determined largely by the supply of qualified personnel. A limited supply makes it difficult to establish research centres with the necessary critical mass to make research feasible. The supply of researchers is determined by the number of economists with postgraduate training. Research skills are acquired through postgraduate programs and good undergraduate programs. The supply of qualified personnel has been shaped to a significant degree by the availability of scholarships for overseas study because the region did not have its own doctoral programs until very recently.

The characteristics of these scholarships have affected the supply of economists. Many scholarships were awarded on condition that a recipient spent time working at the sponsoring institution. This type of scholarship ties students to institutions that are not capable of sponsoring research and, therefore, contributes to increasing the pool of independent researchers only over the long term. It has been the scholarships that have been awarded without conditions that have been largely responsible for expanding the supply of independent researchers in Latin America.

Many Latin American countries have a limited supply of research economists. The overall number of postgraduate economists is small, and many are absorbed by government or international institutions. It is difficult for institutions to maintain more than five researchers on a permanent basis. It is also difficult to create productive research environments with small groups.

Historically, expatriates were the first economists in many Latin American countries. The first economic research was done by external organizations such as USAID, the Economic Commission for Latin America and the Caribbean (ECLAC), the Food and Agriculture Organization of the United Nations (FAO), the Organization of American States (OAS), and the World Bank. Many foreign economists then became attached to schools of economics where they trained the first nationals as researchers. In the 1960s, foundations such as Ford and Rockefeller, as well as USAID, also financed visiting scholars' programs. So, in the beginning, part of the supply of economists was made up of foreign experts, and a large portion of postgraduate scholarships were of foreign origin. When the foundations and USAID reduced their support, the resulting cutback in scholarships and visiting professors significantly reduced the supply of economists. In the future, those concerned with the development of economic research should examine the relationship between institutional performance and the qualifications of research personnel.


Factors Affecting the Success of Research Institutions

Factors determining the success of economic research institutions include the motivation of economists, the research environment, research funding, the use of research, and the reliability of government statistical data.

The principal challenge of any research organization is to keep its research staff motivated. High levels of motivation are more likely to occur when research receives the approval of the community, particularly the academic and scientific community. It is vital to researchers that the results of research be seen as contributing to the formulation of economic and social policy, the efficiency of public spending, or the performance of private enterprise. It is generally easier to sustain motivation for research that accepts the dominant economic paradigm of the society. Economists working within other paradigms are more likely to be motivated by ideological commitment. The danger here is that if research results are not applied in a timely fashion they may lose their practicality

The international scientific community is another source of motivation, as well as a source of research funding. It was the support and encouragement of the international community that enabled Chilean economists to continue their work under the dictatorship, despite its total lack of support. The motivation and productivity of economists also depend on the working environment and the existence of a critical number of researchers. There are important synergies that make research very difficult to carry out in isolation. Research is much enriched by discussions between peers.

Economic incentives also play a decisive role in research. It is relatively easy for a researcher to find employment in the productive sector or with the government; therefore, income from research cannot be too much less what could be earned in alternative employment. Rigid salary structures make it difficult for universities to retain experienced economists and benefit from their increased productivity. Research on institutional development must address this issue.

The single most important determinant of institutional success is access to research funding. In the early stages of development, there were few local funding sources for economic research in Latin America. The region relied heavily on external sources such as the Ford and Rockefeller foundations, some smaller foundations such as the Tinker Foundation, as well as international assistance from Canada, the Netherlands, and Sweden. Later on, the World Bank and the Inter-American Development Bank began to sponsor a limited amount of external research, although these agencies still preferred to do their own research. But because external financing is usually tied to specific projects, the flow of funding is rather unstable.

As the region developed, local sources of funding increased. They included foundations, state research funds, government contracts, as well as private sector and union funds. Because most local sources provided funding through projects, institutions were forced to develop the capacity to design and execute complex research projects. This had an impact on institutional structures. Because it is hard for centralized institutions to coordinate large quantities of funds and research staff, institutions were required to either shrink in size or decentralize project administration and hand it over to the researchers. The latter option necessitated a sophisticated system of cost-control accounting and precise rules for allocating administrative expenses.

Future research on institutional development should explore issues related to administration, research staff size, centralization versus decentralization, and quality control mechanisms such as peer review.

With externally financed research, the market may apply a certain degree of quality control. Because poor quality research affects a centre's output, the market can exert pressures for peer review. A few centres in the region have benefited from stable funding from sources such as government or academia, but these centres do not appear to have survived well, and the quantity and quality of their research has been somewhat inferior. Often, these centres have been unable to complete the long-term and complex projects they have begun. These cases require further study.

Funding is more likely to be available if sponsors can derive profit from the research. The private sector often makes this a prerequisite for its support, but it is also becoming a more common condition of contracts given out by. the public sector. Many of the determinants of institutional success described here do not apply to theoretical research, which tends to be linked to teaching. However, the current difficulties experienced by Latin American universities have led to a shortage of theoretical research in the region.

Research on institutional development must prove this hypothesis to be valid. If it is, systems should be designed to overcome this imperfection of the market. A system to overcome this shortcoming is proposed.


A Proposal for Institutional Development

The design of methodologies to assess research activity must be central to all efforts to develop economic research institutions. A survey of international journals would reveal a great deal about the production of Latin American research centres; it would establish the relative distribution between applied and theoretical research and analyze the success of research in the regional centres. Case studies could be conducted to investigate the influence of research on economic policy and decision-making. It is also important to find out how much local research is used in the region's economics courses. What books or papers resulting from local research are used in economics courses in relation to the international reference bibliography?

Most economic research in Latin America has been carried out outside the university, sometimes in research centres related to schools of economics but more often in completely autonomous research centres. One exception is the theoretical Marxist-oriented research conducted in some universities. Because there is little demand for this kind of research from either the private or public sector, it tends to be conducted in the spare time of faculty. In contrast, there is a great demand for applied economic research. Both the public and private sectors have a direct interest in studies that assess the impact of economic policy. Journals that publish studies in applied economics are in so much demand that they do not need to be subsidized.

Because university salaries have declined markedly throughout the last decade, many professors have taken on other research projects to supplement their incomes. In some universities, faculties have set up connected research centres. It is here that staff find research projects to enhance their basic salaries. However, these research centres lack the administrative flexibility of the university.

It is fair to conclude that the current structure of the university in Latin America does not promote research. Research activities do not furnish the promotions or rewards needed to advance teaching careers. Funds for research are scarce because the bulk of the university's budget goes toward salaries, and more emphasis is placed on the number of courses taught than on the quantity of research completed. Also, the salaries of academic staff have deteriorated to such an extent that university careers hold little allure.

The independent research centre has emerged as a viable institutional model in many Latin American countries; today, a large proportion of economic research in the region is conducted in these centres. These centres have many advantages. They have an administrative flexibility similar to small business and can pay competitive salaries. They can supplement teaching salaries until they become competitive with salaries in the private and public sectors. Their research may be more relevant to the community because it must please funders. Economists endeavour to produce work of a high enough academic standard to attract international funding. Competition for funds between centres tends to increase the quality and relevance of research projects. The relevance of research can be both a strength and a weakness: a strength because research has influence and applicability; a weakness because important research topics may be ignored because they are of little interest to funders.

The development of independent centres has deepened the crisis of the university. Many researchers have left teaching to dedicate all their efforts to projects in the centres. With the loss of researchers from university schools of economics, the quality of teaching has diminished. One result is that university professors who lose contact with research may transmit more obsolete knowledge. This type of teaching cannot make much of a contribution toward helping to apply theory to concrete national problems. Another problem is that independent research centres have few resources available for theoretical research. The result is a certain lack of theoretical economic research in the region. As with other sciences, economics requires theoretical development to advance. Applied economics is important, but the scientific community requires a minimum of people dedicated to the development of theory.

The two main strengths of independent research centres are flexibility and responsiveness. The fact that they are more likely to be influenced by market pressures means that the research topics chosen will generally tend to coincide with the interests of some organization or societal group. There is also a greater chance that research will stay within reasonable time frames and budgets. The weaknesses of the independent centres lie in the separation of the researcher from the teaching environment and the difficulty of financing theoretical research. These problems are not insurmountable; the best economists are generally involved in consultancies, teaching, and theoretical research. The challenge for the profession is to develop the funding mechanisms to allow economists the time to engage in all these activities.

One possible solution is to set up an endowment in each research centre to allow researchers to devote part of their time to university teaching. This scheme would enable researchers to return to teaching and conduct theoretical research related to their specialty. At the same time, they could finance the rest of their time with contracts and consultancies from the private sector, which would let them maintain contact with the real world through their professional work in the field of applied economics. The capacity to obtain some income from the market could also be used as a test to select those professionals who should remain in research centres.

This scheme differs from those of industrialized countries where endowments are created within universities for professors. Here, it is recommended that partial endowments be established for professors at institutions other than universities. The North American or English system would not work in Latin America because of problems related to the extremely bureaucratic nature of the university as well as the system of salaries and economic incentives. Research institutions introduce the required element of competitive pressure.

In conclusion, the ideal solution is to establish endowments for research centres in economics that would enable researchers to devote part of their time to university teaching and part of their time to theoretical research. To further justify this strategy, it would be critical to identify the institutional environments that currently promote the best economic research in Latin America. The Inter-American Development Bank has clearly shown that excellent research is carried out in independent research centres. However, it would also be useful to study specific cases to discover which institutional arrangements best promote theoretical research and closer links with the university without destroying the flexibility and responsiveness of the independent research centres.