Comparative Economic Development

Why Nations Fail and Why Investing in People is a Pre-requisite for Building Both Strong Institutions and Strong Economies

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October 29, 2020

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In his 2006 book The End of Poverty, then U.N. Millennium Development project director and Columbia University professor Jeffrey Sachs argued forcefully that if countries at the bottom of the ladder of economic well-being were helped to get a footing on that ladder’s lower rungs, they then could complete the job of pulling themselves out of poverty. 

 

But the same year, NYU economist William Easterly published his The White Man’s Burden with its argument, summarized in the subtitle, that “the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good.”  In his 2007 book, The Bottom Billion, Oxford’s Paul Collier, earlier a director of the Development Research Group at the World Bank, emphasized corrupt governments, civil wars, blood diamonds, and ways that the international community might help poor countries escape from their adverse political spirals. 

Click here to see the blog originally posted on Better World Economy, or click here to see the review of "Why Nations Fail" on JSTOR, or click here to view the manuscript as a PDF. 

 

What do you think? Join our virtual debate on Thursday, October 29, 2020 moderated by Louis Putterman. Or submit questions in advance. 

Is There Really Nothing We Can Do About Global Poverty? 

Does economists’ dissension offer comfort to the morally squeamish?

Blog posted on Psychology Today

(2012)

In their recent book Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty,  MIT economists Abhijit Banerjee and Esther Duflo describe the argument between Columbia University’s Jeffrey Sachs and William Easterly, “who battles Sachs from New York University at the other end of Manhattan.”  As characterized by Banerjee and Duflo, Sachs argues that “poor countries are poor because they are hot, infertile, malaria infested, often landlocked” and caught in a “poverty trap” in which “they cannot pay for … investments precisely because they are poor.”  

This makes foreign aid key: “It can kick-start a virtuous cycle by helping poor countries invest in … critical areas and make them more productive.”  Easterly, in contrast, argues (again in the words of Banerjee and Duflo) that “aid does more bad than good: It prevents people from searching for their own solutions, while corrupting and undermining local institutions and creating a self-perpetuating lobby of aid agencies.  The best bet for poor countries is to rely on one simple idea: When markets are free and the incentives are right, people can find ways to solve their problems.”

Click here to see the original blog on Psychology Today. 

Persistence of Fortune:

Accounting for Population Movements, There Was No Post-Columbian Reversal

American Economic

Journal article

(2014)

Using data on place of origin of today’s country populations and the indicators of level of development in 1500 used by Acemoglu et al. (2002), we confirm a reversal of fortune for colonized countries as territories but find persistence of fortune for people and their descendants. Persistence results are at least as strong for three alternative measures of early development, for which reversal for territories, however, fails to hold. Additional exercises lend support to Glaeser et al.’s (2004) view that human capital is a more fundamental channel of influence of pre-colonial conditions on modern development than is quality of institutions.

 

The paper provides evidence calling into question Acemoglu, Johnson and Robinson’s claim that the difference in developmental outcomes between countries like the U.S. and Canada, on the one hand, and ones like Haiti and Mexico, on the other, is due to the nature of institutions instilled by their colonizers. We show that the histories of the regions in which the current inhabitants’ ancestors lived prior to the colonial era explains both the institutions and the economic outcomes of different countries in the once-European-colonized world.

Click here to see the article on the AEJ: Macroeconomics website, accessible with a login, or click here to see the manuscript as a PDF. 

 
 
 
 

State History and Economic Development:

Evidence from Six Millennia

Journal of Economic Growth (2018)

The presence of a state is one of the most reliable historical predictors of social and economic development. In this article, we complete the coding of an extant indicator of state presence from 3500 BCE forward for almost all but the smallest countries of the world today. We outline a theoretical framework where accumulated state experience increases aggregate productivity in individual countries but where newer or relatively inexperienced states can reach a higher productivity maximum by learning from the experience of older states. The predicted pattern of comparative development is tested in an empirical analysis where we introduce our extended state history variable. Our key finding is that the current level of economic development across countries has a hump-shaped relationship with accumulated state history.

Click here to see the open access article, or click here to see the manuscript as a PDF.

Who was Colonized and When?

A Cross-Country Analysis of Determinants

European Economic Review (2016)

The process of colonization has shaped the economic and demographic contours of the modern world. In this paper, we study the determinants of the occurrence and timing of colonization of non-European countries by Western European powers. Of particular interest is the role of early development measures that are known to be strong correlates of present-day levels of income. We show that non-European societies with longer histories of agriculture and statehood and higher levels of technology adoption in 1500 were less likely to be colonized, and tended to be colonized later if at all. We also find that proximity to the colonizing powers, disease environment, and latitude are significant predictors of the occurrence and timing of colonization, although their impacts are less robust to choice of country sample. Our models have high explanatory power, and their support for the significance of early development is robust to the use of alternative indicators of early development and disease, to the use of instruments to focus on the exogenous component of early development, and to the joint estimation of the colonization and timing equations to correct for potential selection bias.

Click here to see the manuscripts as a PDF.