« How happy should I be? | Main | Economic costs and benefits of the Iraq War »
Why does underdevelopment persist?
Who better to ask than Rajan and Zingales:
Why is underdevelopment so persistent? One explanation is that poor countries do not have institutions that can support growth. Because institutions (both good and bad) are persistent, underdevelopment is persistent. An alternative view is that underdevelopment comes from poor education. Neither explanation is fully satisfactory, the first because it does not explain why poor economic institutions persist even in fairly democratic but poor societies, and the second because it does not explain why poor education is so persistent. This paper tries to reconcile these two views by arguing that the underlying cause of underdevelopment is the initial distribution of factor endowments. Under certain circumstances, this leads to self-interested constituencies that, in equilibrium, perpetuate the status quo. In other words, poor education policy might well be the proximate cause of underdevelopment, but the deeper (and more long lasting cause) are the initial conditions (like the initial distribution of education) that determine political constituencies, their power, and their incentives. Though the initial conditions may well be a legacy of the colonial past, and may well create a perverse political equilibrium of stagnation, persistence does not require the presence of coercive political institutions. We present some suggestive empirical evidence. On the one hand, such an analysis offers hope that the destiny of societies is not preordained by the institutions they inherited through historical accident. On the other hand, it suggests we need to understand better how to alter factor endowments when societies may not have the internal will to do so.
In other words, for a long time the Mexican government didn't want to educate rural campesinos for fear they would capture a greater share of the rents. Low human capital, initial monopolies, and overly strong interest groups create an intersecting triple whammy to oppose the sacrifices necessary for development. There is much of interest in the theory, including a discussion of when democracy is superior to dictatorship. Here is the paper.
Posted by Tyler Cowen on March 14, 2006 at 09:07 AM in Economics | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c66b253ef00e5508360098833
Listed below are links to weblogs that reference Why does underdevelopment persist?:
» Perverse Political Equilibria from Division of Labour
Earlier this week, Tyler Cowen quoted Rajan and Zingales on the question of why poor institutions persist when we know that they are an impediment to growth. The answer, according to R&Z, is that there might be pervese political equilibria... [Read More]
Tracked on Mar 18, 2006 11:35:31 PM
Comments
"...we need to understand better how to alter factor endowments when societies may not have the internal will to do so"
Sounds ominous.
Posted by: Jeff Burton at Mar 14, 2006 9:53:49 AM
Sounds ominous.
No. Hundreds of millions of souls sentenced to peasantry; never enough to eat; never enough medicine; every day the same unless something horrible happens: that sounds ominous.
Posted by: dave at Mar 14, 2006 10:01:57 AM
It's the memes, not just the government policies.
Posted by: joshg at Mar 14, 2006 11:05:31 AM
Let me add a recommendation for the closely related Rajan and Zingales book:
http://www.savingcapitalism.com/
I don't agree with everything in it, but it is a very interesting read.
Posted by: Commenterlein at Mar 14, 2006 11:07:54 AM
Low human capital, initial monopolies, and overly strong interest groups create an intersecting triple whammy to oppose the sacrifices necessary for development.
Does the paper consider the case of South Korea in the first 20 years or or so after the occupation? Because at that time, there was extremely low human capital (the Japanese had closed all the Korean schools, so apart from a sliver of the elite, who had been educated in Japanese schools, universities, and military academies, two generations had gone uneducated). I suspect there were also strong interest groups at the time (e.g. the traditional landowning classes, who suffered through land redistribution; also the intense regional favouritisms and prejudices), and in the 60s, when Park came to power, he set up enduring monopolists (or oligopolists, at least), in the chaebol. And for all that, South Korea has been remarkably successful in developing a dirt-poor land.
I am too cheap to buy the download at the link, but since in Korea, as in most of the other East Asian countries, there has been great success in bringing development, and that development has proceeded in the face of a mostly uneducated population, against the interests of ancient landowning interest groups, and via state-created monopolies (following the Japanese model), and succeeded for all that, the conclusion you report is sort of in conflict with how I've always understood development to work (i.e. that state-directed development works, if it occurs in a conducive cultural environment).
How do the authors look at Korea and the other developing Asian powers?
I know the legal scholar Ramseyer has challenged the traditional view of Japanese development as having occured via top-down decisionmaking (promoting massive oligopolist conglomerates like the zaibatsu, later the keiretsu), but it seems pretty clear that Japan's imitators -- Korea among them -- went on the traditional understanding and tried to engage in outright top-down industrialisation of their economy. And succeeded.
Posted by: Taeyoung at Mar 14, 2006 12:15:51 PM
They say they aren't satisfied with the simple institutional story because it doesn't explain "why poor economic institutions persist even in fairly democratic but poor societies." I wonder about the unstated expectation of some sort of positive dynamic.
I think the logic of the "perverse political equilibrium of stagnation" applies well enough to U.S. agricultural areas, mining towns, and such. Investing too much in the local schools only ensures that when students get out of high school, they will leave for college and few will come back. However there is a great deal of variety among agricultural-area schools, some are much better than others, so my simple extension of the explanation obviously leaves out a lot on interesting material.
Posted by: mikeg at Mar 14, 2006 12:20:27 PM
I'll branch off on what Tae said, "(i.e. that state-directed development works, if it occurs in a conducive cultural environment)." and say that the cultural institutions and mores of a society need to be included in discussions about the economic development of a state. I've only looked into one source on this, "Culture Matters: How Values Shape Human Progress" (and it's been a few years since I read it) but I say it's definitely something that 1. should be included in econ. dev. discussions and 2. something that people usually don't want to bring up in these discussions.
Posted by: Alex Ambroz at Mar 14, 2006 2:42:00 PM
At the risk of committing the sin of commenting without reading the paper, from the abstract it sure sounds like a far more parsimonious explanation is here: http://www.marginalrevolution.com/marginalrevolution/2004/08/the_dangers_of_.html
Posted by: ziel at Mar 14, 2006 3:16:56 PM
Taeyoung -- I was always under the impression that a significant factor in the development of Korea and Taiwan in the 1960-70s era was that the population had been educated under the Japanese school system and when development took off in the 1960s-70s the population of both was highly literate.
Posted by: spencer at Mar 14, 2006 3:41:12 PM
An extreme example would be in the state of Bihar in India, that
country's poorest state. There, funds for schools from higher
levels of government get absconded by powerful local landlords.
Many primary schools do not even function. There is nothing else
for the kids to do but go to work in those factories that draw forth
protests from well-meaning types in the US.
Posted by: Barkley Rosser at Mar 14, 2006 4:46:49 PM
Wasn't this same theory proposed or hinted at in "Theory of the Leisure Class"
Posted by: rob at Mar 14, 2006 8:26:23 PM
Isn't this basically what Engerman and Sokoloff have always said, applied to Latin America?
Posted by: Maria at Mar 14, 2006 10:15:55 PM
May I recommend Dr. John Powelson's book _Centuries of Economic Endeavour_? The book is also available online as _A History of Wealth and Poverty_ at:
http://tqe.quaker.org/wealth-and-poverty/
John puts forward the thesis that it is the relationship between the rich and the poor which determined how poor the poor are. If the rich have historically been able to ignore the poor, and if the poor have been able to ignore the rich, then they don't work together and both are worse off for it.
My own opinion on the matter (completely independent of John's theory) is that in the colder climates, people have had to rely on each other more. You can see this by plotting revolutions versus latitude. The smaller the magnitude of the latitude, the more frequent the revolutions.
Posted by: Russell Nelson at Mar 15, 2006 1:06:04 AM
This argument is also made by Tom Garvin in 'Preventing the Future' with respect to Ireland.
Posted by: Gabriel at Mar 15, 2006 3:47:03 AM
Clearly, the increasingly important driving force in differences in economic development is average national IQ. For example, China's schools were largely shut down for something like a half dozen years during the Cultural Revolution, yet a decade later China began a dazzling economic ascent into ever more sophisticated manufacturing.
One of the crippling euphemisms of current intellectual discourse is the assumption that education causes intelligence, when we all know the arrow of causality often points in the opposite direction -- smarter people tend to stay in school longer.
On the other hand, Mexico does seem to be an example of a country that could benefit from more education. According to Lynn and Vanhanen's essential "IQ and the Wealth of Nations," Mexico's national average IQ is pretty close to the world average. But Mexicans don't get very much schooling. Paying for sending all kids to school until they were, say, 14, would require the rich in Mexico to stop cheating so much on their taxes, and they don't want to do that.
Unfortunately, I'm not sure that Mexican apathy about education can be blamed solely on Mexico's corrupt ruling class. A recent study by the Public Policy Institute of California found that even 3rd-generation in America Mexican Americans have much worse educational attainments than whites: 22% drop of 3rd generation Mexican-Americans drop out of high school vs. only 6% of whites. And only 11% graduate from college, vs. 35% of whites.
Perhaps the IQ gap (which appears to be about 9-10 points between whites and Mexican-Americans) accounts for all this, but my impression is that apathy about education is more rampant among Mexican-Americans than among, say, African-Americans, who have lower average IQs.
Posted by: Steve Sailer at Mar 15, 2006 4:24:35 AM
Underdevelopment is a hot topic that has been discussed for the time I live in this world.
I think that IQ is a consequence but not the reason of underdevelopment.
Posted by: Helen at Mar 30, 2006 1:23:48 AM
grietjes piss op kantoor ^^^ grietje creampie in bad ^^^ agreeable ragazze ^^^ intenso amatoriali ^^^ modeste trio ^^^ chaude penaud vestale ^^^ la plus chaude mman vingt et un ^^^ merde dix neuf ^^^ beauty giovane figa fotti ^^^ nicer fighetta orale fotti ^^^ hetast tonaring samlag ^^^ dristig elev rovpuling ^^^ eccellente bionde sex ^^^ amore ragazze gruppo ^^^ varmere homse ^^^ brystfager kostnadsfri ^^^ overnaturlig mor ^^^ kjoligst koselig naken ^^^ diaskedasi xanthos avnanismos ^^^ nosokoma pipa irinika ^^^ la plus chaude maman climat ^^^ papa enorme ^^^
Posted by: levan at Sep 7, 2006 2:36:28 AM
goodly allievo doppio penetrazione II studentessa cowgirl anale fotti II epithymo efivos gamisi II korifeos gramateas omadiko II courage nympho chattes II poupees irve dans la residence II fra pareti II pleasant cowgirl sex II nuori bileet II kylmin mahdoton naimaton II esotiche clip II generalista himmel II belachelijk tiener II innemend amateurs II i koket fest II skygg ung II angenam tjej II spenslig fyllig II sotnos tonaring tillverkningen alska II osynlig cowboyflicka rovpuling II agrios mathitis proktiko II synesthimatikos lesvia katourima II maitresse groepsex II laag ejaculatie II efharistos lesvia II komikos lesvia II bite etrange spritzen II cumshot foto II foto analne II
Posted by: gytuk at Sep 14, 2006 1:39:27 AM
