Comments
Most of their analysis looks right.
But they implicitly assume a 100% chance of generating a charter city with better institutions than the host country, given a certain amount of effort on their part. I'd be eagerly donating to them if I believed that. But I expect most countries have political problems which will cause them to reject any charter city effort that comes from outside their country.
I'll estimate a less than 5% chance that any US based charity will catalyze the creation of a charter city in another country, and if such a charter city is created, I'll estimate maybe a 50% chance of it having better institutions than the host country. So I'm dividing their expected impact estimates by about 50 or 100.
A 0.5% boost in annual GDP per capita growth doesn't strike me as a very pessimistic "pessimistic" estimate.
Regulation and Growth looks to be one of the two citations on this (IMO crucial) parameter, but it's just a correlational study of regulations vs growth. The other is China's Special Economic Zones at 30 which looks to be basically a case study.
The Skeptics Guide to Institutions (four parts total) has some background from the skeptical perspective.
(For the record, I think charter cities are interesting. But I also think the domain is extremely complicated and it seems hard to get impact estimates that are even remotely reliable.)
The evidence for the importance of growth is weaker than RCTS by its nature. We're mostly relying on arguments from authority and the eye test. Most economists agree that institutions matter. Shenzhen before and after SEZ status gives an idea of the potential upside. I think most economists would be sympathetic to our high, med, and low estimates of growth.
Very pessimistic is 0, and very optimistic is 5+%, but we bounded our estimates
Yeah, I'm not expecting RCTs. I just think that some attempt at causal inference would be great (e.g. instrumental variable, difference in differences). I also don't think this is a purely procedural complaint (i.e. not just a rote repetition of "Correlation isn't causation!")--I think there are real risks around confounding and external validity.
I'm also fully onboard for the claim that institutions matter. For me, the uncertainty comes in when we ask "Can this intervention change the right institutions with the right direction and magnitude?".
(Also, I don't think it'll be that productive to talk about without bringing more serious evidence to bear but even 0 doesn't strike me as "very pessimistic". There have been plenty of well-intentioned policies with a net negative effect.)
Another beef I have is defining what an institution actually is. Institutionalists in economics often start by defining them as the 'rules of the game', which is vague as it is, but then the term gets extended to mean 'stuff' in the empirical investigations of the impact of institutions.