It seems surprising/counterintuitive to me that some countries were able to invent entirely new ideas about science, technology, economics, institutions, and government, that allowed them to go from poor to rich, while others can’t get rich even with all of those ideas freely available to them, plus other advantages that the former countries didn’t have, such as access to outside investment/aid and abundant world markets. Doesn’t it seem like the latter problem should be orders of magnitude easier? Have you seen any analysis on what the root cause of this might be?
The explanation I favour most is the institutional economics explanation. The core of it is that the elites, and potentially other power factions of society, benefit from a politcal-economy which keeps them rich while keeping the economy poor. Classic examples of this are slave and mining societies. In the US south for instance southern slave owners were able to use their politcal and economic power to support a system that kept them personally rich while keeping the US south much poorer than the rest of the US because agriculture is really bad at improving the productivity of a soceity long run, a strong manufacturing sector would threaten the elites politcal and economic power, and slavery meant there were strong incentives to keep a large fraction of the population poorly educated and unable to participate in the wider economy. The Indian caste system is another example of very different type of very destructive political economy in which economic roles are extremely rigid, and European feudalism a third. Acemoglu, Robinson, Johnson and Dell write the leading papers from this perspective.
Alterative explanations that others favour but I don’t are poverty traps and geography. I think the most credible poverty trap explanation is that economic growth is determined by savings rate to a substantial degree and savings rates are increasing in income giving a poverty trap. The Galor-Zera model is another macro-poverty trap based on fixed costs to education but this has been mostly discredited because basiclly people don’t think that there are substantial fixed costs for education. Banerjee and Dulfo and the leaders of this view.
The geographic explanation, which I very strongly disfavour, argues that low income countries have unusually high rates of tropical diseases and very low soil quality making the initial stage of economic growth very difficult because agricultural productively is too low. This based on the empircal fact that being close to the equator and being a tropical country independently account for a large portion of the variance of GDP per capita. This is most strongly assiated with Jeff Sachs.
A final explanation that I’ve heard is that rich countries have, either intentionally or unintentionally, kept poor countries poor. The most credible version of this I think is arguing that promoting free trade encourages low income countries to specalise in raw materials and aragcultural products and these are really bad for helping economies move up the value chain becuase they don’t involve any learning by doing of more technolgically complex things. Ha-Joon Chang is best exponent of this theory.
A view that I haven’t looked into seriously and strikes as explaining a pretty small number of cases is that there’s a middle income trap specfically assoisated with crime and instability. Poor countries are able to get to middle income status without substantially investing in human capital but the jump from middle income to rich does require human capital. However, now that wages have risen above poor country levels you get unemployment as new countries start their growth trajectories allowing them attract low value add manufacturing. Prolonged unemployment of young men combined with a weak states gets you violence and instability which prevents you from going to upper income. I want to empahaise that I don’t know of strong empircal evidnece supporting this and included it for completeness.
Another view I haven’t looked seriously into but strikes me as plausible is that prior to independence colonies were able to grow and post indpendence many countries have been stuck in grinding civil wars and low level instability caused by natural reasouce wealth, proffessionalised militaries able to conduct coups and ethnic fractionalistion. Prior to their colonisation these wouldn’t have been indepdimetns to growth because say, oil wasn’t accessable and valueale in the same way, nationalism wasn’t a thing so ethnic fractionaliatoon mattered less, and proffesionalised militeries were colonial implants. I again want to emphaises the truly vast gulf in the amount of good empirical work that has been done with these last two theories compared to the first three.
These are all I can think of off the top of my head!
It seems surprising/counterintuitive to me that some countries were able to invent entirely new ideas about science, technology, economics, institutions, and government, that allowed them to go from poor to rich, while others can’t get rich even with all of those ideas freely available to them, plus other advantages that the former countries didn’t have, such as access to outside investment/aid and abundant world markets. Doesn’t it seem like the latter problem should be orders of magnitude easier? Have you seen any analysis on what the root cause of this might be?
The explanation I favour most is the institutional economics explanation. The core of it is that the elites, and potentially other power factions of society, benefit from a politcal-economy which keeps them rich while keeping the economy poor. Classic examples of this are slave and mining societies. In the US south for instance southern slave owners were able to use their politcal and economic power to support a system that kept them personally rich while keeping the US south much poorer than the rest of the US because agriculture is really bad at improving the productivity of a soceity long run, a strong manufacturing sector would threaten the elites politcal and economic power, and slavery meant there were strong incentives to keep a large fraction of the population poorly educated and unable to participate in the wider economy. The Indian caste system is another example of very different type of very destructive political economy in which economic roles are extremely rigid, and European feudalism a third. Acemoglu, Robinson, Johnson and Dell write the leading papers from this perspective.
Alterative explanations that others favour but I don’t are poverty traps and geography. I think the most credible poverty trap explanation is that economic growth is determined by savings rate to a substantial degree and savings rates are increasing in income giving a poverty trap. The Galor-Zera model is another macro-poverty trap based on fixed costs to education but this has been mostly discredited because basiclly people don’t think that there are substantial fixed costs for education. Banerjee and Dulfo and the leaders of this view.
The geographic explanation, which I very strongly disfavour, argues that low income countries have unusually high rates of tropical diseases and very low soil quality making the initial stage of economic growth very difficult because agricultural productively is too low. This based on the empircal fact that being close to the equator and being a tropical country independently account for a large portion of the variance of GDP per capita. This is most strongly assiated with Jeff Sachs.
A final explanation that I’ve heard is that rich countries have, either intentionally or unintentionally, kept poor countries poor. The most credible version of this I think is arguing that promoting free trade encourages low income countries to specalise in raw materials and aragcultural products and these are really bad for helping economies move up the value chain becuase they don’t involve any learning by doing of more technolgically complex things. Ha-Joon Chang is best exponent of this theory.
A view that I haven’t looked into seriously and strikes as explaining a pretty small number of cases is that there’s a middle income trap specfically assoisated with crime and instability. Poor countries are able to get to middle income status without substantially investing in human capital but the jump from middle income to rich does require human capital. However, now that wages have risen above poor country levels you get unemployment as new countries start their growth trajectories allowing them attract low value add manufacturing. Prolonged unemployment of young men combined with a weak states gets you violence and instability which prevents you from going to upper income. I want to empahaise that I don’t know of strong empircal evidnece supporting this and included it for completeness.
Another view I haven’t looked seriously into but strikes me as plausible is that prior to independence colonies were able to grow and post indpendence many countries have been stuck in grinding civil wars and low level instability caused by natural reasouce wealth, proffessionalised militaries able to conduct coups and ethnic fractionalistion. Prior to their colonisation these wouldn’t have been indepdimetns to growth because say, oil wasn’t accessable and valueale in the same way, nationalism wasn’t a thing so ethnic fractionaliatoon mattered less, and proffesionalised militeries were colonial implants. I again want to emphaises the truly vast gulf in the amount of good empirical work that has been done with these last two theories compared to the first three.
These are all I can think of off the top of my head!