ECON 280 for Friday

https://files.stlouisfed.org/files/htdocs/publications/review/2018/07/19/institutional-barriers-and-world-income-disparities.pdf

 

 

Comments

[Cordelia Peters]

I found this article very interesting in relation to an annual report by the Bill & Melinda Gates Foundation that tracks progress on 18 key SDGs, which was released this week. The report wrote that extreme poverty is becoming heavily concentrated in Sub-Saharan Africa. The report concludes that poverty persists and is prevalent in these areas because of "violence, political instability, gender inequality and other deep-seated crises." This assessment of the primary causes of poverty was reiterated in the Wang article. Wang identifies that government misallocation, corruption, and financial instability have been key barriers causing countries to fall into poverty or to lag behind. The correlation seems extremely strong. The Ivory Coast is one of the most corrupt countries in the world, Comoros has political instability, Kenya is vulnerable to financial and price instability etc.

Additionally, the section on India reminded me of our conversations about state-led versus market-led economies. From 1900 to ~1950 India's state took control of industries and implemented restrictive trade policies. India's choice to establish a state-led system doesn't surprise me given the turmoil created by Indian independence and Partition in 1947. Wang then writes that the liberalization of trade and the capital market in the 1970s led to rapid growth in the 1990s. I can understand how the pro-business attitude of the government promoted economic growth both domestically, as Indian citizens became agents of change, and also internationally, as other countries sought growth in India. Today, the government's support of the private sector has increased investor sentiment toward Indian companies. For example, Bangalore has become a hub for entrepreneurs and high-tech startups and is attaching both domestic and international investors.

[Lee Bernstein]

This paper delved into an interesting discussion and analysis, particularly in regard to institutional barriers and economic growth in developing countries. One trend I noticed during the different descriptions of the various countries is the spread of foreign aid to both successful countries as well as those that struggle. The countries that had large growth in their economy and also had a significant amount of investment included both South Korea and Taiwan which had many foreign industries that moved their production facilities to these countries, and Thailand and China also benefited from foreign aid. These are examples of the booming countries where this type of foreign investment was explicitly mentioned in their blurb. On the other hand, Comoros, Cote d’Ivoire, and Greece are all under the broad category of struggling countries, but they also received international money. While not all the details of the foreign money was discussed in this article it starts an interesting conversation about how effective international aid and investment may be and whether it is as useful as it may seem. It is easy to think that just because a wealthy country may be funneling money into a country that needs more economic growth it will jump start their economy. Clearly, that is not the case here because some countries that received foreign aid had rapid growth in their economy, while others didn’t. I would be interested in exploring the further connections between foreign money and the effects it may have on a developing economy.

[Tanner Smith]

Section 4 of this paper, the Country Studies, was fascinating, as examining these case studies allows us to dive into the factors that may cause some countries to stagnate developmentally while others flourish. The list of development drivers at the end seemed like a very good list of base factors that determine why countries develop in the way that they do, but while reading the development laggards list I could not help but think of another factor that causes some countries' development to stagnate: a reliance on cash crops. In many of the countries that have historically struggled to develop, such as Cuba, Comoros, Cote d'Ivoire, Kenya and Uganda, there was a heavy reliance on cash crops that pinned an entire economy's fate on the production of a few products. This is an unfortunate consequence of post-colonialism, as these countries have a history of colonial economies in which it would be most profitable to the colonizers to have their colonies mass produce valuable cash crops such as sugar and tobacco. After independence, in many cases, it has proven to be difficult to transition from a cash crop dominated economy. One reason for this is that it has proven to be a great challenge to transition while keeping the economy afloat, as in order to invest in other sectors, governments need money, which they need to generate through their cash crops.

[AJwitherell]

I feel that Wang, Wong, and Yip present a strong argument here regarding the role of institutional barriers in the development process. After reading this article and Sen’s opinions in Development as Freedom, I am putting a larger stake into the importance of the political institutions. Typically the first things brought up in the development discussion are access to basic necessities (water, food, shelter), but I feel as though often times it is left out that institutions play a vastly important role in enacting the development goals. Following Sen’s narrative, institutions play a role in providing social programs for providing the basics to the poor (clean water, sanitation, electricity, health). However, they also represent an important player in the creation and access of capital markets for the poor, as well as industrialization in general. All in all, institutions play a role in all aspects of development some way or another.

What surprises me most about this piece is the aspect that all of the lagging countries in the second group are operating in a democratic/representative republic political regime. Typically, we think of that as the best form of government for development, and even Sen argues for the installation of representative forms of government such as democracies. Furthermore, I believe the reading left out some important aspects of the lagging countries. For example, a lot of Ivory Coast’s corruption comes in its trade and imports industry, and the article doesn’t really mention this. In addition, the majority of the argument surrounding Kenya’s revolves around international financial crises and price changes. To me, this seems like an external cause that is not entirely in-line with the primary argument of poor internal institutions resulting in poor economic growth. Albeit, stronger and political institutions may have had it slightly less severe, but it seems to me like it isn’t really an on/off switch to rebound from international crises. After all, it took the United States a handful of years even as a leader in developed economies.

Overall, I still believe the reading had a strong argument despite some of its shortcomings. I think it could have been stronger with some further information, and certainly poses important questions about developing strong institutions even within established democracies.

[Megan Philips]

Wang’s article gave a clear picture as to the basic differences behind the successful high-growth development countries and those that are lagging, many of which apply to Sen’s points about the benefit of liberalized markets and investing the benefits of economic growth along the way into efforts that will continue to benefit the overall development. While reading about the lagging countries, one of the themes of their struggles that Wang discusses is their lack of or ineffective R&D. The agricultural-based economies that make up the less-developed countries are extremely volatile. As Wang illustrates in her case studies on Comoros and Cote d’Ivoire, when the agricultural economy is not sustaining the country and the country has not invested in infrastructure and technological growth, it suffers. These two countries in particular have unstable and corrupt governments, which means that the populations receive funds from other entities rather than rely on their own. When reading this, I wondered if any of this foreign aid was going to programs to improve these aspects of the economy and allow them to learn how to better smooth their economic health through technological growth, however Wang does not mention if this is the case. I do think that it is interesting that Ghana, another lagging country, has made efforts on the R&D front, but that it was not sufficient to aid the country’s economic growth. This poses the question of how do outside sources best aid those countries that are working towards developmental progress on the R&D front, but have not been able to succeed in the ways that the rapid-growth countries have.

[Harry Shepherd]

Wang brought up many interesting points throughout this article and I especially found the Table 4 at the bottom of the report the most interesting and informative.

After drawing from all of the data, Wang was able to pinpoint what exactly the main drivers for growth are. The concise table was perfect for the reader to understand the most important factors in growth and sustainable development. Additionally, I enjoyed reading the country-by-country statements and how each individual country was able to develop over the course of the study.

As I had expected, high-tech countries with lots of exports seemed to have done the best, while the more labor-intensive countries grew at a slower rate. This is why the Asian countries, such as South Korea and Singapore were able to experience some of the greatest growth.

While I am usually in favor of keeping the government out of our business, developing countries seem to show the need for government intervention (but no corruption) to guide a country to prosperity, which I found interesting.

[Katrina Lewis]

As I was reading the article, I found myself thinking back to Amartya Sen’s Development as Freedom, and more specifically, his view on institutions within a country. “There is a need to develop and support a plurality of institutions, including democratic systems, legal mechanisms, market structures, educational and health provisions, media and other communication facilities and so on,” (53). I think this need for institutions is shown by the findings of Wang, Wong and Yip as summarized in Table 4. I think that having established institutions would help countries foster the table’s six development-enhancing factors. On the other hand, I can see how institutions can be viewed as the sources of the four development-retarding factors as well. I think the difference between institutions being development-enhancing or development-retarding comes down to whether the countries’ political systems allow citizens to hold the institutions accountable. I do not think it is a coincidence that in the above quotation Sen lists democratic systems as the first institution that a country needs.

I found the country studies section to be the most interesting part of the article because I do not know a lot about the backgrounds of developing countries. The section helped me make the connection between countries’ histories, the development-enhancing and development-retarding factors they have experienced and their recent growth patterns. The one country’s history that I think could have been better explained, however, was that of Chile. The section about the Chicago boys did little to describe how the group of economists improved the economy and rather focused on the outcomes they achieved, which seemed rather insufficient, in my opinion, for an article aimed at explaining drivers of development.

[Zainab Abiza]

Looking at Figure 1, I thought it was fascinating how both China and India started at a similar initial state and had a slow start but then China grew way faster than Indian after the 1980s. As Cordelia pointed out, India's slow/ stagnant growth was partially due to the government's implementation of restrictive trade, financial, and industrial policies. India's economic growth only kicks in the 1980s with the shift towards pro-business attitude on the part of the national government. On the other, China's economy grew at a very rapid rate since it began economic reform and opening its markets in the 1980s. What I found most intriguing is that, based on these narratives, we would expect China and India to have a relatively similar economic growth. However, this is not the case. This brings us back to what we discussed in class last time about these countries' 'social preparedness' and its role in driving economic growth. It makes sense that India's economy did not grow as rapidly as China's especially since half of its population was illiterate. This further demonstrates that human development (especially access to education and healthcare) goes hand in hand with development and economic growth.

Wang, Wong and Yip also point out that China experienced a series of internal structural transformations including rural industrialization. I found this interesting because most the time governments tend to focus on the urban areas and dedicate less resources and attention to rural development and the agriculture sector in particular.

[Turner Banwell]

Clearly, the empirical evidence presented in Wang, Wong, and Yip’s article suggests the role of political institutions are crucial for economic growth, particularly in emerging countries. One part of the paper that interested me was the emphasis most Fast-Growing Economies had on implementing a political structure to promote exports to stimulate growth. For example, take Chiang Ching-kuo’s Ten Major Construction Projects for Taiwan beginning in 1974. This government-implemented project built a foundation for growth opportunities driven by exports. In a similar vein, the article mentions China’s miraculous growth from 1990-20004, where China enjoyed a real GDP growth rate of 10 percent, primarily driven by policies in place to support exporters. Finally, since Malaysia implemented the New Economic Policy in 1971, there has been substantial success and improvement in its ability to export its natural and agricultural resources.

The evidence implies that policies which stimulating foreign investment spending will raise exports, hence increasing real GDP growth. While the data is encouraging, the question I have is what next? Take China, for example, a country who for decades has purposely devalued its currency to stimulate foreign investment and promote exports. At a certain point – maybe even now given the amount of tariffs put in place by President Trump – there has to be a shift away from such a dependence on exports for a country like China to be equivalent to the most-developed countries. This, again, is where I believe having a political structure in place that holds an equal importance on stimulating social development as economic development can lead to sustainable development. I can see how promoting export-lead real GDP growth can be a mean to facilitating growth, but true development will take much more.

[Paul Callahan]

The article started off with a very significant table showing the per capital income ratio between top and bottom 10% countries. The evidence was clear that over time the wealthy gained wealth and the poor stayed relatively the same. It was a great introduction to the article as it set our minds straight about the huge disparity that exists not only between countries but within countries. It is clear that some countries have lagged behind and have never been able to regain economic growth momentum or never achieved it period.
It was interesting looking at Figure 1 and seeing that over the course of 40 or so years, the countries in each group followed very similar trends, and similar peaks and troughs showing not only the linkage to their growth and the global economy but also to each other. In the lag behind countries, it was evident that other than institutional barriers they face problems of corruption, war and etc... The other day I saw in the news that the UK had halted their foreign aid program to Zambia because of millions of dollars disappearing. This is similar to how in the article they mentioned the lag behind countries like Côte d'Ivoire is one of the most corrupt countries in the world yet is dependent on foreign aid. This creates a difficult problem when FDI and foreign aid stops because of the corruption. Furthermore, many lag-behind country's economies are reliant on the performance of a few goods only and many times just one. Therefore if that good falters the economy is devastated. The need for government investment in economic diversification is crucial yet problematic because there is a lack of specialization.

[Claire McCutcheon]

Overwhelmingly, this article stresses the power of a free market strategy and export-based economy in economic development. While this article seems less concerned with uplifting individuals from poverty, consider it juxtaposed to the Sustainable Development Goals. While this piece is geared toward the upliftment of an economy and the SDGs hold focus on the upliftment of people, I would argue that these things are endogenous. After our discussion about the SDGs last week and its faults; particularly its lofty goals and seemingly unrealistic achievements, I was left wondering what could put these goals into action. Through substantive research and palpable achievements, this article clearly shows the potential and promise of export-led policy, business infrastructure, tech advancements, and pro-market institutions (276). The countries that met success with these initiatives vary greatly in culture, geography, and political climate- which makes it tempting to consider its applicability on a larger scale, with countries like Uganda and the Philippines, which is what this paper argues. Perhaps the intersection of policies such as these and the SDGs could bring about true economic development, and therefore provide the keys for the seventeen Global Goals.

On the other hand, I will also say that this article might overstate the power of the six development-enhancing factors they list. As I previously stated, these countries represent very different corners of the globe, and it seems unfair to summarize success in six bullet points. That being said, their evidence is compelling and makes economic development feel more attainable.

[Nick Anders]

Wang, Wong, and Yip made many interesting points throughout this paper. The most interesting segments for me were the ones that discussed the shortcomings of the trapped and lag-behind countries, for these are the nations needing the most reform to help them become similar to the “Asian Tigers” and other fast-growing countries. Their argument shines light on a few commonalities among these countries, displayed in Table 4. This immediately caused me to recall Sen’s stance on the role of political institutions in Development as Freedom, in which he argues that institutions have the responsibility of providing citizens with the necessities for a healthy life (i.e. clean water, healthcare, education, etc.). However, as made apparent in this paper, these institutions are a real detriment to the development of the country if they are not efficient and pure. We see this in places like Latin America and Brazil where there is a concerning amount of corruption present. This corruption likely leads to severe government misallocation and financial instability, two more contributors to the lagging performance of these lesser countries, suggesting that these factors are functions of one another. Without a healthy role of institutions, lag-behind countries are going to have a steep climb ahead of them to get on par with the Asian Tigers.

Additionally, many of the trapped/lagging countries have agriculture-based economies, such as Côte d’Ivoire and its reliance on cocoa. Not only does that make their economies very volatile – the economy will react to the changes in their respective commodity's price – but the lack of sufficient R&D will make it extremely difficult for the nations to develop more into an industrial-based economy. Wang, Wong, and Yip argue that industrialization is essential for sustained economic growth, but without a commitment to R&D, these countries are going to have a tough time seeing improvements within their countries.

[Lucas Longo]

One of the things that really jumped out to me in this article was the large impact, either positive or negative, that outside countries can have on a given country’s development. For example, Taiwan was able to experience rapid development while relying on technology imports from the United States and Japan that it likely would not have had access too otherwise. Additionally, the authors mention foreign direct investment (FDI) as an important driver of development; this was brought up in the analysis of Thailand, which relied partly on Japanese investments to help quell its economic problems in the 1980s. I think this evidence places somewhat of a burden on more developed countries to help kickstart developing economies if possible, as countries such as the US are clearly able to provide an impetus for economic growth in certain situations. Questions then arise however in regard to which developing countries should be invested in and how much should be invested.

On the other hand, this reliance of developing countries on those already developed does have its drawbacks which also need to be considered. One that initially come to mind is the effect of financial crises. A crisis that occurs in one country may have large effects downstream, as with the 2008 crisis in the United States and the harm it caused Greece. However, it seems that the risks are outweighed by the possible benefits that developed countries are able to provide.

Another aspect that I found unsurprising yet still compelling was the dependence of many of the laggard countries in this study on agriculture. Clearly many of these countries, such as Kenya, have not recovered much since the prices for some commodities such as coffee crashed in the 1970s. I wonder if helping these laggard countries to transition from this reliance on agriculture would be a viable/feasible means of development.

[Maggie Phipps]

This article narrowed down the factors that caused the lag-behind countries’ growth to stagger to unnecessary protectionism, government misallocation, corruption, and financial instability. Relative TFP and institutional barriers also played huge roles in determining which countries would experience growth and which would fall into development traps. I found it useful that the quantitative data for all of the countries was followed by a brief reasoning for why each country got to its point. I noticed a pattern in each country’s description; interactions with other countries had a huge effect on domestic growth. While most of these “interactions” include trade, an obvious source of growth, there seem to be other ways that countries can influence each other. For example, I found it very interesting that it was noted that in South Korea, high schoolers are required to take Japanese. The article credited a large portion of South Korea’s growth with its ability to interact with and model Japanese business structure.
The article also proved that a country’s reliance on international markets and relationships can come with a cost. For example, Greece experienced tremendous growth prior to 1970. As a member of NATO and adopter of the euro, it seems odd that Greece would be with the laggards. Unfortunately, the country suffered greatly from both the financial crisis that originated in the United States in 2009, well as the European sovereign debt crisis. This shows that a country’s ability to globalize and participate in international trade does not safeguard it from economic downturn.

[Heeth Varnedoe]

Wang et al.’s discussion of institutional barriers and effective development strategies provides a crucial insight into the important role that institutions play in promoting or hindering development. My coursework at Washington and Lee has convinced me that proper institutions are the most important contributor to development—more so than other contributors such as natural resources, geography, and climate. This particular article made me think about the role that colonization may have played in establishing the institutional framework for many of the poverty trap and lag behind countries. While some of the growing successful economies were indeed colonized, I cannot help but wonder if many of the struggling countries are maintaining some remnants of the extractive, corrupt institutions established by a colonial power.
This article also highlights important questions pertaining to development policy for entities like the World Bank. It is difficult and perhaps problematic for developed nations to change the institutions within struggling nations, but on the other hand, this article and the broader literature all seem to suggest that policies such as protectionism are an impediment to sustainable development. Development organizations will need to identify proper mechanisms to identify ways to increase institutional capacity and effectiveness in the third world that is respectful of those nations’ sovereignty.
I find the case of Mauritius to be extremely fascinating, as it is a small, island African nation. While dependence on agriculture is an impediment to development for many of the African nations, Mauritius was able to establish itself as a player in the global sugar market and use that revenue to leverage itself into a service, based tourist economy.

[Sam Boxley]

Wang, Wong, and Yip’s paper repeatedly emphasizes the vital role that political institutions play in development outcomes across the globe. The trend amongst Asian Tigers and other fast-growing countries is relatively clear: employ open-market policies, focus on diversified export growth and promote FDI and tech investment. And while the success of said policies can often defend on country-to-country- variables and outside factors such as the Asian financial crisis in the late 1990’s, the formula for stimulating growth is there. What really struck me about this piece was the consistent themes present in those countries which have experienced stagnant or declining development. Aside from some clear disadvantages faced by formerly imperialized, poverty-trapped countries such as Comoros, Ghana, Kenya, and Uganda, who did not gain independence until the mid to late 20th century, poor political institutions and barriers have stalled development in countries that may very well otherwise be thriving today. Countries such as Argentina and Chile implemented overly protectionist policies of import substitution, closing off markets and leading to crippling inflation. The Philippines and Brazil were plagued by rampant government corruption, a signal of unsound political institutions. Comoros, Cote d’Ivoire, and Uganda rely heavily on the agriculture industry and have yet to fully industrialize. Many countries have also relied far too heavily on one or few industries or goods to drive economic output. Cote d’Ivoire once comprised 40% of global cocoa production, so when cocoa prices crashed in the 1970’s it crippled the national economy. Kenya’s dependence on foreign oil made the global oil crises in the 1970’s especially difficult, and their reliance on coffee and tea exports compounded the problem. The world is constantly becoming more interconnected, technologically driven, and sophisticated, and the common missteps of excessive protectionism, inability or refusal to properly industrialize, and lack of success with staving off corruption that have been made by stagnated countries highlights the crucial role that institutional barriers play in development.

[Emma Richardson]

I found this paper very interesting, especially the points made about export-led policies and unnecessary protectionism. In this global age, it makes sense that being a greater participant in the global market would lead to great economic success. I really liked the anecdote about South Korea and Taiwan and their transition away from the import substitution model. I had only previously heard about the import substitution model in a Latin American history class, so seeing it in this starkly different context was provocative for me. The paths of South Korea and Taiwan have given me greater hope for countries previously retarded by the import substitution model. This economic transition embodies the two ideas I mentioned: export-led policies and unnecessary protectionism. I have always thought of ISI as unnecessary protectionism, but considering it as an “anti-export-led” policy has given me a new perspective.

The segment on Argentina, one of the development laggards in this piece, was also very interesting to me. The unsuccessful efforts of the Argentine government to control every aspect of the national economy demonstrates the negative effects of unnecessary protectionism. I remember from my Latin American history class that in Argentina, the political pendulum swung widely from one side to the other. This political instability fed into other development-retarding factors such as corruption and government misallocation which still hurt Argentina to this day. Argentina’s recent economic problems are certainly frustrating, especially given the pro-business attitude of the president. It will be fascinating to see if export-led policies can ever succeed in Argentina as they did in Asia.

[ROBERT COOLEEN]

The article written by Wang, Wong, and Yip effectively relays many of the points we have discussed over the past couple weeks. The nations which experienced large economic growth were those where people were able to exercise their human capabilities in productive manners. This begins with “the establishment of correct institutions and individualized incentives for better access to capital markets, international trade, and industrialization.” The focus on technology not only improves resources within the country, but gives citizens the freedoms to help develop and progress the economy. On the other end of the spectrum, the countries that have experienced the lowest economic growth all feature unstable governments. Unfortunately, many of the African countries that experience corrupt governments are those who have only gained their freedom within the past 100 years. This fundamentally made it difficult for their citizens to succeed because their capabilities are restrained by the lack of effective policy and leadership. One might argue that people in some of the slow growth countries might have more actual freedom than people in China, and that raises the difficult question of whether or not it is better to have a very controlling government that limits freedoms, but provides a better society, or if it is better to have a hands off government that lets people have the freedom they want but seldom helps progress the country. There is no clear cut answer, but based on our conversations, and the idea that freedom is the ability to live the life you choose and value, I feel that it is vital for the government to become involved in policy. Furthermore, as we read, this policy needs to focus on general industrialization and technological progression as opposed to focusing on one export. This proved detrimental in many slow growth countries that saw their main export to fall in price.

[Andrew Zandomenego]

Wang, Wong, and Yip seem to arrive at many of the same conclusions outlined in Sachs’ work. Particularly, as I touched on in my previous response, the role of technology proves to serve an instrumental role in development. As seen in the data, Singapore, South Korea, and Taiwan all benefitted from the adoption of a tech-focused economy. While comparative advantage makes it clear that every nation cannot prioritize technology while sustaining a productive global economy, the benefits of technology at different scales depending on a country’s situation remain crucial. For instance, it would not make sense for the laggard countries to place high-tech industries on the forefront of their economies due to the previously established, and dominant, markets seen in prosperous Asian countries, as I listed earlier. However, technological advancements made through the global sharing of ideas can help boost the markets that they rely on, such as agriculture in Comoros.

Another point that relates to the course deals with the topic of freedom, as we learned from Sen. Wang et. al.’s piece mentions Argentina and its struggle with soaring inflation rates. However, there is a story that is not told in the article which deals with political and social freedoms. During the late 70’s and early 80’s, Argentina’s government regime tortured and killed citizens for the expression of conflicting ideas. I believe that this plays a serious role in the nation’s economic development. During the era following WWII, Argentina saw an influx of immigrants from Europe, many of which were well-educated and trained to be productive labor force participants. This certainly boosted the capacity of Argentina’s labor supply, which in turn was met with more jobs and serious expansion. However, a corruptive system, which Wang et. al. also mentions as a downfall in economic development, clearly crushed confidence in the economy by restricting the free market to benefit a small portion of the population, i.e. those aligned with the government. This turn of events fits in well with our discussion of the “proper” role of government in a free market, which is to encourage the population to participate in the market.

[Charlie Bovard]

Wang, Wong and Yip's article that analyzes the income disparities between fast growing economies and development laggards delved deep into the drivers of development in the ten countries studied. There were some obvious trends that were discussed, but there were three countries whose development and institutional information surprised me with their economic status: India, Ghana and Greece.
Their ranking of India as an emerging giant was surprising considering the past articles and chapter readings we've read about India's poverty levels. I didn't realize that government focus in Research and Development along with a shift in private business would help increase a country's economy, despite the poor human capabilities of their country.
When reading about each of the emerging and successful countries and how most of their development was due to industrial growth and that most laggard countries' poor economies were due to lack of industry and mainly focused around agriculture, Ghana struck my interest because of their diverse and dynamic manufacturing industry in the 1970s. Even though they pursued industrial growth, they weren't aggressive with it and decided to go public with R&D.
Greece's economy was also interesting because their economy only became a laggard economy because of the financial crisis' effect in 2008. I figured that most of the trapped economies would be mainly trapped due to their inequality levels and/or poverty, but it never struck me that a country's economy could be so fragile that a single crisis would throw it off balance.

[Tom Kellogg]

I found Wang, Wong, and Yip’s paper to be especially interesting in its ability to dissect growth, or lack thereof, and draw relevant and economics backed conclusions to why fast-growing and trapped economies differ in terms of relative GDP growth. In Section 3.2, the authors point to institutional barriers as the leading cause of divergence between the different economies, citing 52.63% and 66.31% and 101.70% growth for fast-growing, trapped, and lag behind economies. The paper concludes that these “institutional barriers…hinder the process of their structural transformation” (264) causing the lag-behind countries to underperform in terms of GDP growth relative to the United States. If we examine a fast-growing economy, for example South Korea, against a laggard country, Argentina, we really begin to understand how much institutional barriers can hamper growth. South Korea “pursued a government led, export-oriented growth strategy” in the 1960s, which was then paired with the promotion of “heavy industries through the supply of cheap credit” in the 1970s and a dedication to “its strategy of long-term investment in high-tech exports” (266-267) during an overinvestment period in the 1980s. This demonstrates the South Korean government’s pursuit of decreasing institutional barriers as it set low interest rates, encouraged a commitment to an export oriented economy, and invested in a long-term commitment to technology exports. In contrast, Argentina failed to assuage “chronic inflation” due to “growing government spending, large wage increases, and inefficient production” (273). Inflation definitely hampered Argentina’s growth; contractionary fiscal policy would have been a very prudent way of dealing with a rate of inflation that averaged “more than 300 percent per year during 1975-91” (273). State-run enterprises, stagflation, and large government borrowing eventually led to the collapse of the Argentinian economy in 2001, when “GDP declined by nearly 20 percent in four years” (273). The comparison of South Korea to Argentina typifies a divergence in government commitment to eradicating institutional barriers. South Korea’s government encouraged exports, cheap credit, and technological innovation, whereas Argentina’s failed to act amidst tax evasion, huge foreign debt, and catastrophic stagflation. These two examples demonstrated just how important it is for a country to reduce the amount of institutional barriers are present in its economy if it wants to grow its GDP.

[Elly Cosgrove]

I think Wang, Wong and and Yip do a great job breaking down the growth, or lack thereof, of many countries. Through thorough analysis, the authors were able to illustrate to the reader the factors that help or prevent an economy from growing and developing. With that being said, I don’t think they captured the full picture based on readings we had this past week, specifically in regard to Ch. Five in our textbook. For example, Wang, Wong and Yip begin with their analysis and documentation of fast-growing economies including Hong Kong, Singapore, South Korea, Taiwan, Malaysia, Thailand, China, India, Botswana and Mauritius. It appears that across all 10 of these fastest-growing economies, there was investment in manufacturing and exports. There was investment in increased technology, industrialization and in some cases occupations like engineers and scientists. While this pushed high-wages and shifted production away from labor-intensive work to more high-technology activities, I think that the authors failed to analyze certain implications such investment might have. For example, in chapter five we talked about 1) modern-sector enrichment, 2) modern-sector growth and typology and 3) traditional-sector enrichment. While the first two focus on a growth in the modern sector, obviously, and high wages, I think it fails to create change for a large number of people in the traditional sector, thus creating greater income inequality. While these 10 fastest-growing economies were able to achieve such growth through investment of the modern sector and investment in technology/ exports, I wonder if poverty in the traditional sector saw any change. I think this is an issue that the authors failed to address.

Another point that I thought was important, that many other classmates also picked up on, is the importance of political and financial institutions. This article emphasized a free market as well as an export-heavy economy and strong business infrastructure. It was intersting how similar the economies of the "Asian Tigers" were as displayed in Figure 1. Not only did the "Asian Tigers" or the fastest-growing economies follow a very similar path, but so did the trapped economies.

[Maddox Wilkinson]

I found Wang, Wong, and Yip’s article to be very informative and interesting because it highlights the downside to the growth-mediated process of development as defined by Sen. Sen describes this approach to development as “postponing socially important investments until a country is already richer” (47). This article I think really helped explain more clearly the harm this approach can cause to a society. This article concludes that, although not the only factor, institutional barriers have accounted for a lot of the rapid growth seen in developing countries around the world. Those countries who chose to institute policies or procedures that systematically disadvantage certain groups of people saw a large amount of growth. This was interesting to me because Sen talks about the role of the government in a completely different way in his view of how development should best occur. Although these areas are seeing economic development, what cost does it come at? There is always a trade-off within the triple bottom line when development takes place, and this article emphasis’ the damage using institutional barriers to develop can cause. By focusing only on the economic development part, you ignore development in social inclusion and sustainability. Despite the recognized growth, the article reports the accompanying widening of income disparity and increase of social limitations. One thing I believe would be interesting to look at more closely is the actual lives those ostracized by the barriers live and whether these countries are still developing in this fashion today. At what threshold does a country become “rich enough” to transition to the support-mediated process of development as defined by Sen?

[Jordan Watson]

Wang, Wong, and Yip’s article emphasizes the crucial role that strong institutions play in development for nations. While this may seem simple to apply to all developing countries at first glance, Wang et. al’s case studies of “trapped” and “lag-behind” countries demonstrate that the instances of corruption and inefficient allocation of government lead to institutions being developing countries ultimate downfall. Like many of my classmates mentioned above, as I was reading this article, I kept relating the findings back to Sen’s opinions on how institutions have the responsibility to provide for citizens. Therefore, although it might be challenging, I believe it is the ultimate responsibility of countries to prioritize making their institutions as pro-market as possible before they will experience growth.

I found the case study of Greece to be particularly interesting because the authors did not go into much detail on why the country is classified as a “laggard,” but rather they went into more detail about when the country was doing well, hosting the 2004 Olympics, service-focused economy, etc. I would have liked to learn more about the reason's for the country's large amounts of debt and lack of focus on its education and technological sector.

[Timothy]

After reading the article, I was immediately caught off guard by the aggressive suggestions for hyper-free markets in developing countries. While we can trace many of the problems with markets in lagging or trapped countries to excessive governmental interference, a major shortcoming of the article is the inadequate representation how free markets may also fail these countries. Upon reading this article, someone could easily be left with the impression that free markets and non-existent government entities are the recipe for economic success. After observing how often free markets fail, we know that this isn't the case. Similarly to the sentiments of confusion after the Sen reading, I think that this article could leave readers wondering what the path forward looks like.

Despite this shortcoming, I found it fascinating that developing nations around the world can trace back many of their problems to the same underlying variables. Across different cultures, different regions, and drastically different histories, the fact that the issues surrounding the development of these nations is similar and can be approached systematically gives me a fair amount of optimism for their future development. I would like to hear more about the path forward for these nations. I thought that the concluding remark (“Thus, the establishment of correct institutions and individual incentives for better access to capital markets, international trade, and industrialization can be viewed as crucial for a country to advance with sustained economic growth”) is a bit ambiguous given the comprehensive study of so many different, complex economic systems. I was a bit shocked when I made it to the end of the article— I had a bit higher expectations for the synthesis and application of the data analysis.