Wang, Wong, and Yip’s article examines why there are income disparities between the fast-growing economies and those that they call “developmental laggards.” They ultimately study this through examining individual countries in depth in order to determine what causes each country to have its economic standing within the world. Their method of looking in depth at individual countries made it interesting so that I could better understand the economic background and policies in each respective country.
Three things caught my eye as a read through this article in terms of “developmental laggards.” The first is agriculture. Agriculture is one of the main ways of making money in developing countries. Agriculture is an important part not only to the economy but also to lives. The food we eat every day comes from farmers. What is interesting, however, is that farming is typically different in developing countries in comparison to other countries like the United States. I remember in the Spring Term Sustainable Development class, we discussed the importance of empowering farmers as well as sustainable farming. Allowing farmers to increase crop production through more productive means is essential. In developing countries, farmers do not have access to the technology we do in the United States. For example, they have little to no access to pesticides and fertilizers, and they do not have tractors or other machinery to help them with their work. Additionally, if there is a drought or a disease that kills all of the farmer’s crops, he or she does not have an income for that season. It puts these individuals in a tough situation, and they deserve more recognition, especially in developing countries. Therefore, something really important in terms of policies for helping out developing countries is to focus on the agricultural sector.
The second thing that stood out to me was government corruption. Whenever I think of government corruption, it reminds me of Venezuela. It is a powerful example of what government corruption can do to a country. The economy completely collapsed. In addition, many people are trying to leave the country due to the poor living conditions—lack of food, violence, and unemployment. While the corruption is much more complex than what I just summarized, it proves the point that government corruption can have drastic impacts on the economy of a country and the wellbeing of its citizens. Brazil, another country in South America, is stated in the paper to have lost approximately $41 billion a year due to corruption. Corruption alone has led to billions of dollars gone in a country that desperately needs them.
One last thing that is important to note that came to mind was the discussion of the Philippines and how natural disasters have an impact on them. While the authors do not go into depth about natural disasters, the mere mentioning of it brings to mind the fact that a poor country like the Philippines is prone to many tsunamis and earthquakes, which can greatly impact the country. These countries rely on a lot of foreign aid when these events occur. It brings up a good point that in some cases, things that dramatically affect the economy are not things we can control. Natural disasters is a good example of this.
The article "Institutional Barriers and World Income Disparities" analyzes the income disparities between two groups of countries, those with fast-growing economies, and those they call "developmental laggards." Within each category, they looked at countries in Asia, Africa, and South America. Interestingly, all of the countries faced similar issues such as economic downturns, however the main difference between the fast-growing countries and the developmental laggards is their ability to overcome those difficulties.
What stuck out to me was the fact that the countries with fast-growing economies typically had export-based economies with open policies. The developmental laggard countries all had some level of governmental protectionism, which protected those within the market well enough but didn't promote any productivity or competition. For example, in South Korea, the Five Year Economic Development Plan focused on shifting their energy from primary exports to the manufacturing sector, which promoted investment in high-tech exports. In Côte d'Ivoire, however, the economy is heavily focused on cocoa output and export, which led to a structural problem of their economy due to the dependence on cocoa production. When cocoa prices collapsed (and never fully recovered), Côte d'Ivoire was left with a serious problem. What I noticed was that countries who experienced this type of problem are unable to divert resourced to the manufacturing and technology industries. A hallmark of the fast-growing economies is the importance that is placed on tech.
Not only were the economies in developmental laggard countries primarily agriculturally based, but many of those countries face serious corruption. Government allocation is then inefficient, and as a result, these economies are unable to shift from agricultural societies to manufacturing ones.
What was interesting to me were the South American countries, which are categorized as developmental laggard countries, yet they're not primarily agriculture based. They showed initial growth relative to the United States and seemed to be doing well, but they all more or less suffered from the same issues: accelerated inflation, foreign debt, and corruption. Chile, on the other hand, pursued a free market reform. I think Chile could be an interesting country to delve deeper into, since Chile is now one of the healthiest economies in Latin America. Why is Chile still considered a developmental laggard country if their exports grew rapidly, per capita income took off, inflation declined to single digits, wages increased substantially, and the incidence of poverty plummeted? What is the cut off between fast-growing and developmental laggard, and has Chile reached this point?
Although there are unique reasons to why a country may be lagging behind, the most prominent reason is due to the failure for a country to transition from the agricultural stages to a diversified market. Clearly, government corruption, recessions, and health issues are major components of why a country might encounter these issues. Even so, I still think given the time period we currently live in, with technological advancements, a country with its main source of income through agriculture will continue to struggle compared to the rest of the world unless it is able to diversify.
Without the proper government institutions set in place, fluctuations in prices, revenues, and yields in the world economy make it very difficult for farmers in other countries to produce a steady source of income. Take the United States for example. After the agricultural revolution in the United States, there were approximately 6.4 million farms by the year 1910. With advancements in technology and increasing economic growth in the United States, the United States only had 2.2 million farms in the year 2008. Without government subsidies in America, there would be far fewer farms than we currently have. For example, last year there were over $11 billion dollars in subsidies sent out to farmers in order to keep the farms in production. Without government involvement, even a wealthy country like the United States wouldn’t be able to keep its agricultural services in check but is able to remain profitable from its economic diversity and good institutions.
My point is that due to the corruption of governments in many undeveloped nations, there is nothing to keep the agricultural services sectors profitable which is what so many of these countries rely on. In other words, it is one of their only sources of income. In my opinion, I feel countries who continue to only rely on agriculture will continue to stay in the poverty trap unless there is another way to bring them into the economy. This poses the question: How do we get undeveloped countries out of the poverty trap if their biggest source of income is reliant on agricultural services? How do we expand their markets and make them producers of a different degree of products and services?
This article discusses how the income disparities between fast growing economies and development laggards have widened in recent years. It is made quite clear that the fast growing economies have strong export centred development strategies whereas those stuck in the poverty trap have import substitution economic strategies. These development laggards, when they do export, typically export agricultural products or natural resources instead of industrial products.
What caught my eye however was the development in China and India. Both countries were both went through incredible economic policy reforms. China underwent rural industrialisation and proposed to fight corruption--two major factors many of the development laggards have not yet achieved. India is also fascinating because the government invested in R&D and was in favour of private businesses. It is interesting to contrast this with Ghana as they also invested in R&D, but through public institutes instead. However, they were unable to make significant contributions because they lacked the "critical mass" required.
Another point I found interesting and has been brought up in some of the previous blog comments is the idea of countries in poverty traps relying on agriculture exports. Are there ways we can invest in these countries to grow their industrial sector? These nations should have the resources to transition, but does the population want to? Does this tie back to our reading from last week, or from my global politics class, where we learned that people would rather live on their own land and farm instead of migrating to cities/factories and leaving their families behind? I think it is important when looking at data such as this to also take a look at cultural and historical aspects of the countries involved. Otherwise, it would be impossible for us to look for ways to improve the situation these developing countries are in.
Before I read the Wang, Wong, and Yip article I had just read a portion of a report by the FAO about sustainable food and agriculture for another class. The report could not help but inform my reading of the Wang, Wong, and Yip article, and led me to question some of their conclusions a little bit. The Wang, Wong and Yip article underscored the importance of government policy in development. They argue that the state must support open trade policies, push towards an exports dominated economy, and promote high tech innovations and industrialization. All of these policies make sense to me except to some extent the necessity of promoting high tech investment and industrialization. It seems that there may actually be an avenue for development through innovations in agriculture, and in fact this may be a space where lag-behind and trapped economies could begin to pull forward.
They mention several times the failure of various states to move beyond an agricultural based economy and how this has either caused them to become trapped or lag behind the development of the U.S. and other countries. However, it seems not so much that the agricultural economy itself was the problem, but rather the reliance on just a few key exports. For instance, Kenya relied heavily on the exportation of coffee and tea, and when prices for these goods decreased dramatically it had serious consequences for Kenya’s economy. Moving towards a more sustainable agricultural system, where no one crop dominates, could lead to more stability for these agricultural societies without the need for industrialization.
As the world population continues to grow, more and more food production will be necessary. All agricultural societies need not be abandoned but rather invested in as a valuable resource for the world. Wang, Wong, and Yip argue for the need for “absorption, adaptation, and creation of technology” in a move towards industrialization. However, this innovation and creation of technology can be achieved through agriculture as well, and the FAO report, like the Wang, Wong, and Yip paper, argues that investment in technology is necessary for sustainable development. In the FAO report, they argue for increased access for crop farmers to markets through “capacity building, credit, and infrastructure,” as a means towards both more sustainable development in agriculture and ultimately sustainable development overall. The argument for increased access to markets actually sounds a lot like the main argument of the Wang, Wong, and Wip article--that institutional barriers are the largest factor in lack of development. Thus, it seems that societies need not necessarily move away from agriculture entirely, but rather focus on sustainable development of agriculture instead. This will set them up to feed a rapidly expanding global population, and position them for further development.
I found it interesting how similar the different strategies pursued by the countries who have found economic success. The Asian countries especially seemed to follow a similar strategy of creating an export-focused economy with a strong manufacturing sector. Some of these countries were then able to pivot into the tech of financials sectors as well using this strong economic base. These countries seem to strongly support the pro-free business approach to development that was popular in the west for decades. It was clear however that this did not work for all of the countries. Some of the South American countries tried to unsuccessfully build manufacturing-based economies using import substitution strategies which backfired significantly. I have to wonder how easy it would be for these sub-Saharan countries to copy this model of the Asian nations who have easy ocean access and large urban labor forces. Many of these countries are focused on agriculture and exporting these crops or other raw materials. I think it would be interesting to see the effects of helping keep more of the value chain for these goods in the nation that originally produces the raw materials and crops to add high paying jobs to the economy.
Wang, Wong, and Yip provide an insightful analysis of the impact of institutional barriers on world income disparities. Perhaps the most unique aspect of their manuscript is their country-by-country examination of the socioeconomic factors behind each nation’s economic growth or lack thereof. By presenting the data on 10 selected fast-growing economies and 10 selected “laggard” economies and then briefly covering every country’s recent socioeconomic history, the authors prevent generalizations and recognize that institutional conditions are country-specific.
I found it particularly interesting that the 10 selected fast-growing economies are concentrated in East Asia, while the 10 selected laggard countries were concentrated in Africa and Latin America. This suggests that economic growth and institutional barriers (both the independent and the dependent variable in this paper) are influenced by region. Furthermore, the relevance of region as a factor in the analysis of institutional barriers’ effect on economic growth likely implies environmental, historical, and other exogeneous factors causing economic growth to be concentrated in some regions and not others. For example, it is possible that the poor institutions of the colonial era in Latin America continue to influence the region, causing it to experience corruption, protectionism, and instability of currency more than the European countries. Similarly, it is possible that the technology boom that boosted the economic growth of East Asian countries was a regional “domino effect” that started with Japan/Taiwan and then spread into surrounding countries. I think the economic conditions of a country have a lot to do with the economic conditions of surrounding countries, and I would definitely be interested to explore this concept at a deeper level.
In any case, the authors open the door to a more complex explanation for income disparity among countries throughout the globe. They also address the question posed in Todaro and Smith’s book of whether ending poverty and economic growth are goals that are at odds with one another. The answer appears to be, according to Wang, Wong, and Yip, that improving the functions of institutions and eliminating those that adversely affect economies is the key to achieving simultaneous reduction of poverty and economic growth. For example, the authors mention that the banking crisis is at fault for Kenya’s negative economic growth. If Kenya’s banking system was stabilized, not only would this stimulate growth, but it would also encourage people to save, which would ultimately reduce poverty. Additionally, improved infrastructure and industrial capabilities in Ghana would not only stimulate economic growth, but they would likely increase development of healthcare and education opportunities, leading to a reduction in poverty. Thus, Wang, Wong, and Yip’s research provides a foundation for reconciling the goals of economic growth and poverty reduction through an institutional improvement approach and through removal of existing institutional barriers.
While last week we read about how poverty looks different at a micro level, it was interesting to read this week’s article regarding how similar laggards and economies stuck in the poverty gap are. We saw in the previous reading that while people from poor households across the world allocated money differently than expected, they all relied heavily on agriculture. And not surprisingly, the common feature of laggards and countries stuck in the poverty gap is that they mostly export agricultural goods. On the other hand, the economies that have been doing well have focused on industrialized products, IT and research and development.
I understand that at a macro level things like industrialization, corruption, and open market impact the economic growth of a country, but I wonder if we can conclude that it impacts all the countries the same way without considering other cultural, social and political factors that hinder growth or the resources available in each country. For instance, could we just rely on institutional change and reformed economics policies to allow a country stuck in a poverty trap to advance where we also observe extreme inequality, political instability, civil unrest, or any country-specific struggles. Since we have been learning that poverty is not just a measure of the national income, I also wonder how the growing wealth has been distributed in the countries that have observed economic growth?
I found “Institutional Barriers & World Income Disparities” to be quite interesting and illustrative of the power of global trade on development while also showing the hindrances of unnecessary institutional barriers. One of the aspects of the paper that I would like to explore in more detail is the effect of imperialism on some of the African countries who were labeled as lagging behind countries with strong economic growth. All 5 of the “developmental laggards” from Africa were under some form of European rule until at least the late 1950’s. Ghana achieved political independence in 1957, Cote d’Ivoire was a French colony until 1960, Kenya became independent in 1963, Uganda was a part of the UK until 1962 and Comoros did not declare independence until 1975. My question is: isn’t it clear that this would have a direct impact on a country’s economic development? I am no expert on this topic, but one characteristic of imperialism in many African countries was the export of raw materials and thus wealth from these materials going to the European powers that colonized Africa, not to the African countries themselves. I wonder if that wealth had stayed in African countries and allowed to disperse throughout their economies, if some African countries development would be a bit further along in their development? Many of these countries have become dependent on agriculture and often only a few cash crops to support most of their economies (Cote d’Ivoire with cocoa, Comoros with ylang-ylang, vanilla and coconut, etc.) My question again is: if imperialism never existed in these countries and more wealth was available at the top of these countries, could there be more access to financial institutions which might allow more loanable funds to exist in the economy and thus people could specialize and produce services within their country rather than so much of their GDP depending on the export of raw goods? I would like to talk a bit more in class about the effects of African colonization on present day economic development and was somewhat surprised to not see it addressed in the article.
Wang, Wong, and Yip’s study aims to answer the question of why some nations develop faster/more successfully than others. Their study concludes that institutional barriers, such as government misallocation and corruption, for example, contribute immensely to widening income disparities in certain countries. One theme that stuck out to me was how certain countries’ economic conditions seemed to be either helped or hindered by foreign influence throughout history.
In cases when countries’ economies were helped, foreign powers helped to increase business infrastructure, which in turn gave way to those countries embracing export-led open policies. For example, a portion of Hong Kong’s immense economic success was thought to be attributed to the U.S. building production lines to produce American supplies during the Korean War. It is easy to see how Hong Kong’s garment and textile industries must have benefitted from the introduction of these mass production facilities. Additionally, Japanese rule in Taiwan before and during WWII was responsible for enhancing infrastructure, such as transportation systems, and making primary education a requirement. It appears that these improvements to Taiwanese society probably contributed to giving the people the capital resources to build an industrialized and technology oriented economy.
In cases where countries’ economic conditions were hindered, colonization appears to be at fault. For example the study mentioned that African countries such as Comoros, Ghana, Uganda, and Kenya did not gain independence until around the 1960s-70s, which is relatively recent. Whether it is a correlation or causation, these countries’ economies have also suffered due to a dependence on agriculture, lack of export diversification, and corruption. To what extent is the fact that these countries have recently become independent related to the fact that their economies’ are “trapped” in a dismal state or “lagging” behind other economies? Could African colonization be considered an institutional barrier that hindered the process of these countries’ structural transformations? If so, how could foreign countries intervene in a more beneficial manner like what was seen in Asia?
The article, "Institutional Barriers and World Income Disparities" goes in depth on the reasons for income disparities between two groups of countries, the fast growing economies and the development laggards.
A couple things stuck out to me while reading. The first was how similar the reasons were to why a certain country was either in the fast growing economies group or the development laggards. All of the fast growing economies had an export led open policy and some type of advancements in technology. The development laggards all had some form of corruption at the highest level and had agriculture at the head of their exports and in some cases their only export. For example Kenya and Ghana heavily rely on Coffee to fuel their exports and ultimately their economy while Côte d’Ivoire’s is in a similar boat but with cocoa as they're leading and basically only export. The agriculture driven economy is not able to function at a high productivity rate and income rate. There is a blueprint on how to be in the fast growing economy group but some of these countries just cant fullfil it. They know how and what they need to do but they physically cant because of the circumstances they are in which goes back to development as freedom. These nations do not have the freedom to be leading the export world because what they have to offer is not enough to boost there economy to where it needs to be. Its not just these two countries who suffer with agriculture as the main export it is almost all of the development laggards. What can we do for these nations and these nations exports to boost there economy? The corruption aspect also stuck out to me with these development laggards. How are the people of these nations suppose to thrive when the highest government officials are not putting them in a situation too. The social mobility is corrupt and something that needs to be addressed but at the same time I cant think of a way to fix either of these problems because I do not know if it is realistic to just change a countries exports or get rid of corruption within a nation.
I think that this article offers a very interesting perspective on some causes of development and what could be hindering countries from attaining a certain level of economic growth. I usually argue that education and health are the most important steps towards development because they are an investment in human capital and they should result in higher productivity. However, this article made me question this belief. I have realized the importance of political institutions on the process of growth.
The diagrams show a clear picture of how the world income disparities between countries have widened throughout the past decades. I was very surprised by the remarkable growth experienced by the “Asian Tigers” and how that contrasted with the withering of the “Trapped countries”.
When comparing all the countries chosen in the article, I have realized that there were some obvious common denominators for growing economies and common denominators for trapped economies. The former would be the adoption of policies that led to exported-led economies and the investment on industrialization, while the latter would be the corruption of the governments and the dependence on imports. I noticed that some countries had their own surprising steps that lead them to development that were not necessarily correlated to industrialization, technological advance, or opening to international trade. Mauritius is a great example of how a country can achieve economic growth just by improving tourism. I also noticed that China, while international trade played a big role in its growth, there were many other interesting transformations that were part of this change including rural industrialization, reform state-owned enterprises, and modernization of the banking sector.
Finally, I believe that most of these arguments seem valid and the evidence is strong. However, they should not be taken as the ultimate cause of poverty or economic growth. There are many other different factors that could have hindered economic growth in Africa and Latin America such as geography, colonial history, natural disasters...
I think that it is fantastic that we have identified certain avenues or polices that countries can adopt in order to develop quickly. The most important appears to be the diversification and industrialization of markets within a country, the relative openness of the economy and incentivizing foreign investments. These strategies work well but seem to only work well when there is a lack of institutional barriers. Institutional barriers, such as corruption and protectionist policies, limit the TFP and therefore make the positive policy strategies unachievable or null. In my mind, if you want to develop quickly and positively, with respect to GDP per capita, you need to remove institutional barriers quickly and adapt to a global market. My question, or rather concern, is one that isn’t addressed in the paper, is about the costs of the switch to positive institutions and the resulting economic development. What exactly are the costs, long term, and short term, of such a rapid shift in policy or government and the huge growth that many of these “miracle” developing countries experienced? One of the major costs that Wang, Wong, and Yip fail to address are the environmental and cultural costs of rapid development and globalization and I would love to hear more about them.
This article seeks to find answers as to why wide income disparities have emerged across the world between fast-growing economies and development laggards, as well as the role that institutional barriers play in the emergence of such disparities. What I found most interesting was the question as to why some countries who had comparatively stronger foundations, like Argentina and Chile, ended up lagging behind in economic growth to other countries who were essentially worst off in the beginning but then experienced fast growth. Specifically for these Latin American countries, the articles blames the implementation of import-substitution industrialization (ISI) in creating barriers to the fast-growth seen in other countries.
I want to focus more on this policy as it led me to question some economic developments seen in the US and in some fast-growing economies today. I previously learned in my Latin American politics class that a major reason why Latin American countries implemented ISI was to reduce a dangerous dependency of their domestic industries on the international market for manufactured goods. They believed that ISI would allow them to regain a self-sufficiency by protecting domestic sectors, raising tariffs, and limiting the number of imports. Of course, as the article discusses, ISI fell short of brining self-sufficiency by creating high inflation and overall financial instability for these once strong foundational countries.
I think it is interesting how this protectionist policy of ISI proved to be a reaction to this sense of dependency on foreign markets just as much as Trump, today, has implemented protectionist policies to protect the US market from a dependency on China. For many Latin American countries, the economic reaction to dependency proved debilitating to growth. Will the same occur to the US following similar protectionist policies? China has proven extensively dependent on foreign markets and has actually reaped major economic growth by focusing on exports. So, to me, after reading the article and thinking of these policies, I was left with a final question of “Is dependency on foreign markets really a bad thing at all for economies?” I assume the answer is that it depends on the country and context.
"Institutional Barriers and World Income Disparities" explained the widening income disparity between countries as a result mainly of institutional barriers. The article selected 10 fast-growing countries, 5 economically trapped countries, and 5 countries that have experienced prosperous development but are not performing well recently. By analyzing these representative countries individually, the authors summarized elements that promote and impede economic development.
As the authors pointed out, fast-growing countries actually have similar levels of institutional barriers with trapped countries. It thus confuses me a bit how the paper can conclude from such data that institutional barriers trapped certain countries when they face comparable institutional barriers to rapidly developing countries?
The article presented several points that interest me. Firstly, it appears that many of the fast-developing countries started with labor or resource-intensive productions. It is reasonable since developing countries generally have little access to advanced technology that enables efficient production. To start developing technology, countries need to accumulate physical capital. Thus, a country’s resources, either labor or physical resources, become important. For countries with abundant resources like Botswana (diamond) and China (big population), initiating the accumulation of physical capital appear comparatively easy--as long as government policies adequately encourage such accumulations. However, landlocked countries with a small population and barren lands might be less fortunate. Now that countries with few resources available can no longer use colonization to acquire physical capital, it seems rather unlikely that such countries would gain enough physical capital to accelerate their economic development themselves.
Secondly, from the analyses of the lag-behind countries, I learn that a country should never depend on one economic source, especially when the price of that one source fluctuates irregularly. Many of the countries classified as “trapped” in this research article maintain an agriculture-based economy. Their technology remains undeveloped, so they interact and trade with the globe with cash crops. One dominant cash crop these laggards rely on is coffee whose price varied much in past decades. When the price of coffee drops, which it did, the economy of those countries crashes as well. Not only is choosing to export coffee an unwise decision, but also choosing to rely on agriculture in general. Agricultural products seldom stand out from other similar products. Countries exporting cash crops thus tend to be price takers, which increases the possibility that their economy would fluctuate with the market. Again, it may sound hypocritical to recommend trapped countries to diversify their economy--they are barely self-sustained. To diversify the economy, countries need money and technology to support the creation of new products. To accumulate money and technology for that purpose, countries need to rely on something that can earn them money. Before they acquire the capital to develop other exportable products, they have to rely on cash crops. However, cash crops prove an unreliable source of money, so poor countries frequently remain trapped in poverty.
Finally, almost all lag-behind countries exhibit rapid population growth. While it may negatively impact the economy in the short run, as there are more people to feed, in the long run, having many adults who can participate in the workforce can be advantageous. A capable government can allocate its population to industrialize more areas more rapidly. China, a country with the biggest population in the world right now, can serve as a good example. China started rapidly growing in the 1970s; policies that helped include setting economic zones to encourage direct foreign investment, making primary education mandatory to increase human capital, and supporting the development of technology. Similar policies aided other rapid-growing countries in the article, but China has another resource other countries may not own--a big population. With a big population, employers can set wages at a low level because the demand to work would remain high. Lower wages then help companies maintain low product prices that ensure their products’ competitiveness in the global market. A big workforce enables Chinese companies to accumulate more money from selling more products with higher profits, with which they can build more factories to employ more people and industrialize more areas. A big population actually helped China enter into a beneficial cycle of development. It may help trapped countries with big populations out of the vicious cycle of poverty.
The article by Wang, Wong, and Yip addresses the growing gap in GDP per capita between the top percent of advanced countries and bottom percent of poor countries. They elaborate on the differences in growth—or lack thereof—among the Asian Tigers, other fast-growing economies, trapped economies, and lag-behind countries. All measures used in the article are relative to the United States. The data explains how the fastest-growing countries are growing faster than the United States, while trapped economies are growing slower. I wonder about the implications of using the United States as a "standard" for distinguishing the speed and magnitude of growth. It seems this could affect the interpretation of the data in some way?
The country-specific analysis explored the circumstances behind each economy. I was astounded by the way most of the economies described were dependent on those of other countries for growth and stimulation, or for an example. Much of this dependency takes the form of international trade, foreign investments and policy. For example, South Korea’s economy saw rapid growth by imitating Japan’s economic model. Further, many of the fastest-growing economies opted for export-led policies, showing the importance of international involvement for economic growth. This dependency also took form in unique ways such as tourism. Both Mauritius and Greece saw benefits in the expansion of their tourism sector, which relies on citizens of foreign countries for success. However, not all international dependencies are positive. Brazil’s foreign debt has created a massive strain on its growth, and Thailand’s hostile international politics has contributed to their economic problems. As a whole, the article drew a clear picture of how dependent these economies are on one another.
Institutional Barrier and World Income Disparities offers a number of valuable insights on development around the globe and some of the characteristics of states that experience strong economic growth relative to those that are lagging. Though their measurement and analytical techniques were a bit confusing for me, a couple of key findings and questions stood out. First of all, this article seems to corroborate the argument that industrialization and infrastructural development are key factors of a country’s economic development. It seemed that the development of multidimensional manufacturing economies, particularly focusing in Technology, strongly correlated with high levels of income growth. Namely, Japan and Taiwan, experienced massive growth with the incorporation of these industries and foreign investment into their economy. In contrast, the nations that lagged characteristically remained focused on agricultural commodities and lacked diversification. These countries seem particularly susceptible to economic shocks, as described with the decline of cocoa prices, which severely harmed Cote d’Ivoire, and lacked manufactured exports.
The article compared across countries, particularly relative to the United States, but did not investigate disparities within countries deeply. In thinking about our recent class discussions, I wish they had gone more into discussion of factors of production such as labor and capital to describe where much of their investments were going, particularly to investigate if such economic growth was benefitting the entire population equally. I would ask about poverty rates in both lagging countries and the leading countries.
I found Wang, Wong, and Yip’s article about the economies of fast-growing countries and “lagging” countries extremely informative. The article helped me gain a perspective about why some countries are economically prosperous while others are falling behind. I think this is useful information for future policies in developing countries. Reading about the success of pro-market reforms of various countries made me hopeful that there is a way for these lagging countries to grow their economies too. Although these lagging countries face severe institutional barriers, I hope that one day their government cooperate in enacting major change.
I found the information on South Korea particularly interesting. Starting in the early 1960s, the South Korean government pursued a growth strategy that shifted their focus to exports and manufacturing. The country also pursued long-term investment in high-tech exports. South Korea is a prime example of how globalization and market-based policies can lead to tremendous economic growth. South Korea’s neighbor, North Korea, could have followed a similar pattern, but this is not what happened. Instead, North Korea’s government oppressed its people and the country’s economy suffered.
I also think that China is an interesting example. China made a tremendous progress by opening up its trade policies and is now the number-one exporter in the world. China’s economy has grown significantly, but wages are still extremely low. Has China really made progress if its growth is not benefitting its people? Would China continue to grow if the minimum wage was raised? While this article did a good job of showing the improvements China has made, it is important to remember that this is not the whole story.
“Institutional Barriers & World Income Disparities” is both interesting and non-assuring to me in a way that makes me feel confused as to whether I should be hopeful or pessimistic about the fate of the poor as we enter the third industrial revolution, with the emergence of AI and automation.
Countries that have changed their status drastically from “developing” to “developed”, “four Asian tigers”, “two emerging giants”, or “economic miracles” did so in a time where innovations were not as widespread and developing at a slower pace as the trend right now. Currently, almost every country is trying to have their finger on the most innovative capital that is introduced in the market. So, what are the prospects for countries whose people have little access to basic rights and decisions let alone embrace technological advances? If they lower the institutional barriers, their underdeveloped credit system might not be able to handle the strong inflow of capital and investment. Their people don’t have the necessary skills to utilize the technology provided to them through foreign investment. If they maintain the institutional barriers and focus on providing jobs for the poor, their economy will be lagging behind in terms of capital. Seeking the right institutional barrier balance requires time and a lot of trials and errors. Time is something they lack. Trials and errors are simply not something they can afford given their vulnerable population and economy.
However, I am still hopeful that international assistance will be able to provide developing countries with an escape from this dilemma. Subsidies and conscious efforts to provide the poor with enough financial assistance to sustain themselves will help strengthen the resiliency of a country, particularly its economy. People are every country’s greatest asset, especially developing countries. Thus, fortifying such an asset will help a developing country deal with economic issues in the long-run. Globalization has had both positive and negative effects on a country. Throughout my formative years in Vietnam, I got to bear witness to the drastic changes that this country has undergone under the influence of globalization. The country was plagued with corruption, business distrust, and a weak credit system in the early 2000s. Yet, due to the influence of globalization and global immersion, Vietnam got the chance to completely transform its economy. It has evolved from a mainly agriculturally based country to more industrially based. Adopting accounting policies and attracting the attention to big global accounting companies in the world, Vietnam has taken strong steps to eradicate business corruption. In 2019, Vietnam is making a conscious effort to change its accounting system to IFRS (International Financial Reporting Standards) to prove to the world that it has got what it takes to embrace globalization and earn the trust of foreign investors. However, it is hard to imagine how these achievements can be accomplished without the financial assistance from foreign countries and the eradication of abject poverty in the early 2010s. Some people have a doom and gloom view about a developing country’s future and have a disbelief in whether the financial assistance will make a difference, as in the case of Greece which have been in financial trouble for years and years on end. However, assisting a country is definitely not a bet of whether that country will succeed. It is actually the responsibility that we have as fellow human beings. And as human beings, albeit from a developing country or not, we have a moral obligation to always keep on trying and moving forward, and that’s why I am hopeful that the developing countries will one day find the economic stability and a wealthy (and healthy) population to stand on their own two feet.
“If you were president, faced with a slowing economy, what would you do?”
— This is just one of the multitude of questions that people want the Democratic candidates running for president in 2020 to answer in hopes to see the U.S. economy improve.
And while Andrew Yang is pushing to give $1,000 per month to every American citizen, Elizabeth Warren is proposing a sweeping increase in Social Security benefits through new taxes on the wealthy, and pretty much everyone is laying themselves out to draft their own very best and at the same time very different from others economic plan for the country, experts state that the dominant economic question sparking debate within the Democratic Party is about the place of the private sector vis-a-vis government.
So you can probably blame it on the overviews of the Democratic debates that I’ve been recently reading on NBC News, but the questions that occupied my mind after I finished reading “Institutional Barriers and World Income Disparities“ all had to do with the role of government in the economy.
The question of how much the government should intervene in the economy is as old as time, as they say. However, when prominent economists take 10 fast-growing and 10 lagging-behind kind of countries and find out that in their development over the past five decades, “institutional barriers have played the most important role, accounting for more than half the economic growth in fast-growing and trapped economies and for more than 100 percent of the economic growth in the lag-behind countries,” regardless of political affiliation, one kind of starts sympathizing with the Democrats and wondering if in the end development mostly depends on the quality of decision-making on the governmental level. As Wang, Wong, and Yip summarized, all of the 10 fast-growing countries have adopted an open policy with an export-led development strategy. How did they do it? Seems like most of them created and followed a clear economic development plan such as the 1967-71 Five-Year Economic Development Plan of South Korea that made it shift from import-substitution to export-oriented industrialization or The Ten Major Construction Projects of Taiwan which was analogous to South Korea’s in its achievements. How do governments come up with those plans? Do they mostly copy other successful countries like South Korea did with Japan? In any case, it is clear that developing international relations, opening up markets and willing to learn and benefit from other countries are all integral parts of making an economy grow as is best demonstrated by the histories of Singapore and China. Then there is strong administration, smart policies, the ability to adapt to crises, and even the power of a single person that all seem to play a very significant role in a country’s development. In this respect, India was the state that has struck me the most. Its growth came much later compared with other fast-growing countries, and no wonder, as their government followed what Wang, Wong, and Yip call “restrictive trade, financial, and industrial policies.” Despite all that, the government was clever to invest in research and development along with human capital as it started programs for developing engineers and scientists. Then in the 1980s, something in the government shifted in favor of private businesses, and the country was able to see rapid growth in the economy by liberalizing both international trade and the capital market. This “something” that caused the shift to the government’s favor of businesses was the return to power of Indira Gandhi which made me wonder – how often is it that a single person creates such a positive change in the government that it subsequently impacts the whole economy? Also, India’s handling of the “well-known 1991 balance-of-payment crisis” (that I, to be honest, don’t really know much about and also would be really glad to learn and discuss the Asian crisis and the two oil crises mentioned in the paper as well) deserves praise as it provoked the reform that finally started the liberalization of the economy toward a free-market system.
To return to my main question of the extent of the role of government in the economy, in contrast, the “laggards” were overcome with such flaws in government strategy as unnecessary protectionism, government misallocation, as well as such pity misfortunes as corruption and financial instability – all of which suggests to me that even if the government wanted best for its people, it intervened too much, so mistakes were made and harmful practices took place. Now, does it have to be like that? The story of Chile’s Chicago boys suggests that if a country’s government is willing to listen to and even bring in talented economists from abroad like Chile did with Chicago economists, it can significantly boost its economy, and so it seems like human capital on the very governmental level matters tremendously. Could it be so that passionate, action-driven rulers are the only thing that other lag-behind countries need to improve their situation? Colonial past, population pressures, and corruption from which those countries suffer so much all can, it seems, at least in theory be overturned by the changes in the governing body. After all, Singapore once used to be an extremely poor country basically built on a “swamp,” but it was its first President Lee Kwan Yew and his aides who made Singapore a flourishing state that is now considered to be one of the richest countries in the world. By the way, if you haven’t read Lee Kwan Yew’s From Third World to First: The Singapore Story: 1965-2000, I strongly recommend, as he tells all about how they did it.
This article from Wang, Wong, and Yip categorizes countries into two groups based on their policy and development, over a time period and looks at the country's subsequent relative growth. These two categories are "fast growing" and "development laggards". The success stories from the fast growing economies contrasted against the lack of success in the development laggards offers an idea of how a government or state can use policy to progress a country’s economy. There seems to be a formula and pattern for success and growth. So, my question is: why is it hard for countries to follow this formula? The fast growing economies seemed to focus on policies that stimulated exports and specialization in diverse industries. For example, Taiwan’s implemented the Ten Major Constructions Projects which gave way to the export-led growing economy. This policy helped industrialize and gain a trade surplus. This pattern seemed to flow through most of the cases of fast growing economy.
Why, then, if there seems to be a formula for growth, do the lagging slow growth countries not implement similar policy. I think that there is just a slight disconnect in many of the “laggards” to what could have caused success. I think Brazil is a great example of this. Set aside the incredible amounts of corruption, Brazil started an intense import substitution program which took the society from agriculture to industry. A step in the right direction. It grew 7 percent in the 1950’s. Although here is where the disconnect in the policy came through. The government did not set up the institutions for export growth so Brazil started to rack up a large current account deficit which worsened as Brazil imported more for industrialization and the cycle worsened. Brazil started to experience incredibly high rates of inflation and Brazil is still struggling today. What I take from this case is the fact that they started down the right path of industrialization but lacked infrastructure and policy to export their goods. I’m sure that corruption and other factors played into why this did not happen, but Brazil seemed to be close to success. Had they had the right sort of policy to help export and create a trade surplus, then perhaps Brazil would be among the success stories.
The article “Institutional Barriers and World Income Disparities” made me think about how the Cobb Douglas production function can be applied to macroeconomic growth, as well as the development of specific industries within particular countries or regions. While reading the cross-country analysis of the ten "fast-growing economies" and ten "development laggards”, I couldn’t help but to think about Japan’s post World War II increase in economic growth that I learned about during my macroeconomic theory class. Japan’s growth was due to a breakthrough in production levels in its manufacturing and auto industries. The Japanese borrowed and improved upon many technologies and organizational structures that the United States was using at that time. These changes involved a period of de-industrialization and limiting exports of previously profitable goods, such as textiles. Investing heavily in the manufacturing industry lead to major productivity gains and eventually propelled Japan onto the global stage during this time. It was interesting to read that countries classified as “fast-growing economies”, such as South Korea and Taiwan, used similar technology and organizational strategies as Japan to increase their economic growth. I also liked how the authors consistently talked about the United States because it gave the reader a good unit of comparison.
Wang, Wong, and Yip outline the steps that many "miracles" have undertaken to develop since the 1960s. The emphasis on an export-based manufacturing economy in the beginnings of the growth period to a more service-based, technological economy seems to be the common path for many of these countries. If these steps seem so clear, why are many countries unable to follow the method? The article speaks to the difficulties that many lagging countries face in implementing this strategy. I find the differences in issues between the countries that are lagging interesting. It is not one comprehensive problem that these nations face, it's more so the continued unrest throughout the past half-century.
I was also interested in the importance of globalization and global economic crisis that the article touched on. No matter the economic standing of these nations, most were affected by the internet bubble in the late 90s/early 2000s and the financial crisis of 2008. Globalization aided the fast-growing economies via the ability to introduce manufacturing that left the developing world. Based on the shift to a service economy by these fast-growing nations, it will be interesting to track the future of manufacturing. I know at least within the textile industry, manufacturing has moved out of China and into countries like Vietnam and Ethiopia. These may be some of the countries that are next to join the fast-growing economies of the world.
I was quite fascinated by this week’s piece about global income disparities by Wang, Wong, and Yip. While I’ve certainly been aware of the vast differences in global income before, I was not aware of just how big this wealth gap was and how much it has grown over the past couple of decades.
In previous classes, we have discussed how, all things being equal, this is undoubtedly the best time to be born into the world. With global health and well-being benchmarks like infant mortality and extreme poverty declining across the globe (including some the most challenging countries), I somewhat naively expected global incomes to be following a similar story. But clearly isn’t the case. While the 1960 per capita income ratio between the top and bottom 10% was already somewhat startling, I was mortified to see that this ratio had grown exponentially to 58:1. At this point in the article I found myself puzzled. What could drive this sort of extreme income inequality? How is inequality increasing at this rate when other global poverty indicators seem to be showing overwhelmingly positive results?
At this point, I was very curious to see exactly what was driving the world ever increasing income gap on an individual country by country basis. This is where the article really began to click for me. The first example of a fast growth economy that really caught my attention was Hong Kong. According to the article, Hong Kong had achieved a global reputation for its check manufacturing labor cost. While this is certainly a positive step for GDP growth and I necessary growth phase seen in more emerging economies, this is no way to becoming one of the fasting growing economies in the world. The article then points out that Hong Kong transitioned to a service-based economy during the early 90’s and has since become one of the largest financial hubs for Asian and the world. This transition to a from an agriculture or manufacturing based economy to a service one is clearly one of the most efficient ways to grow national incomes and make the increase in global income inequality more understandable.
After reading this, one question keeps coming back to me. While every country has the opportunity to fix corruption, promote financial stability, and cut back on government allocation, not all nations can be leaders in tech, finance, or entry the service industry in general. That’s just number. Thus I’m curious to see how the next few decades play out to see whether or not there is enough room at the top everyone.
Wang, Wong, and Yip’s article examines why there are income disparities between the fast-growing economies and those that they call “developmental laggards.” They ultimately study this through examining individual countries in depth in order to determine what causes each country to have its economic standing within the world. Their method of looking in depth at individual countries made it interesting so that I could better understand the economic background and policies in each respective country.
Three things caught my eye as a read through this article in terms of “developmental laggards.” The first is agriculture. Agriculture is one of the main ways of making money in developing countries. Agriculture is an important part not only to the economy but also to lives. The food we eat every day comes from farmers. What is interesting, however, is that farming is typically different in developing countries in comparison to other countries like the United States. I remember in the Spring Term Sustainable Development class, we discussed the importance of empowering farmers as well as sustainable farming. Allowing farmers to increase crop production through more productive means is essential. In developing countries, farmers do not have access to the technology we do in the United States. For example, they have little to no access to pesticides and fertilizers, and they do not have tractors or other machinery to help them with their work. Additionally, if there is a drought or a disease that kills all of the farmer’s crops, he or she does not have an income for that season. It puts these individuals in a tough situation, and they deserve more recognition, especially in developing countries. Therefore, something really important in terms of policies for helping out developing countries is to focus on the agricultural sector.
The second thing that stood out to me was government corruption. Whenever I think of government corruption, it reminds me of Venezuela. It is a powerful example of what government corruption can do to a country. The economy completely collapsed. In addition, many people are trying to leave the country due to the poor living conditions—lack of food, violence, and unemployment. While the corruption is much more complex than what I just summarized, it proves the point that government corruption can have drastic impacts on the economy of a country and the wellbeing of its citizens. Brazil, another country in South America, is stated in the paper to have lost approximately $41 billion a year due to corruption. Corruption alone has led to billions of dollars gone in a country that desperately needs them.
One last thing that is important to note that came to mind was the discussion of the Philippines and how natural disasters have an impact on them. While the authors do not go into depth about natural disasters, the mere mentioning of it brings to mind the fact that a poor country like the Philippines is prone to many tsunamis and earthquakes, which can greatly impact the country. These countries rely on a lot of foreign aid when these events occur. It brings up a good point that in some cases, things that dramatically affect the economy are not things we can control. Natural disasters is a good example of this.
Posted by: Margot McConnell | 09/16/2019 at 05:51 PM
The article "Institutional Barriers and World Income Disparities" analyzes the income disparities between two groups of countries, those with fast-growing economies, and those they call "developmental laggards." Within each category, they looked at countries in Asia, Africa, and South America. Interestingly, all of the countries faced similar issues such as economic downturns, however the main difference between the fast-growing countries and the developmental laggards is their ability to overcome those difficulties.
What stuck out to me was the fact that the countries with fast-growing economies typically had export-based economies with open policies. The developmental laggard countries all had some level of governmental protectionism, which protected those within the market well enough but didn't promote any productivity or competition. For example, in South Korea, the Five Year Economic Development Plan focused on shifting their energy from primary exports to the manufacturing sector, which promoted investment in high-tech exports. In Côte d'Ivoire, however, the economy is heavily focused on cocoa output and export, which led to a structural problem of their economy due to the dependence on cocoa production. When cocoa prices collapsed (and never fully recovered), Côte d'Ivoire was left with a serious problem. What I noticed was that countries who experienced this type of problem are unable to divert resourced to the manufacturing and technology industries. A hallmark of the fast-growing economies is the importance that is placed on tech.
Not only were the economies in developmental laggard countries primarily agriculturally based, but many of those countries face serious corruption. Government allocation is then inefficient, and as a result, these economies are unable to shift from agricultural societies to manufacturing ones.
What was interesting to me were the South American countries, which are categorized as developmental laggard countries, yet they're not primarily agriculture based. They showed initial growth relative to the United States and seemed to be doing well, but they all more or less suffered from the same issues: accelerated inflation, foreign debt, and corruption. Chile, on the other hand, pursued a free market reform. I think Chile could be an interesting country to delve deeper into, since Chile is now one of the healthiest economies in Latin America. Why is Chile still considered a developmental laggard country if their exports grew rapidly, per capita income took off, inflation declined to single digits, wages increased substantially, and the incidence of poverty plummeted? What is the cut off between fast-growing and developmental laggard, and has Chile reached this point?
Posted by: Anne Riter | 09/17/2019 at 02:26 PM
Although there are unique reasons to why a country may be lagging behind, the most prominent reason is due to the failure for a country to transition from the agricultural stages to a diversified market. Clearly, government corruption, recessions, and health issues are major components of why a country might encounter these issues. Even so, I still think given the time period we currently live in, with technological advancements, a country with its main source of income through agriculture will continue to struggle compared to the rest of the world unless it is able to diversify.
Without the proper government institutions set in place, fluctuations in prices, revenues, and yields in the world economy make it very difficult for farmers in other countries to produce a steady source of income. Take the United States for example. After the agricultural revolution in the United States, there were approximately 6.4 million farms by the year 1910. With advancements in technology and increasing economic growth in the United States, the United States only had 2.2 million farms in the year 2008. Without government subsidies in America, there would be far fewer farms than we currently have. For example, last year there were over $11 billion dollars in subsidies sent out to farmers in order to keep the farms in production. Without government involvement, even a wealthy country like the United States wouldn’t be able to keep its agricultural services in check but is able to remain profitable from its economic diversity and good institutions.
My point is that due to the corruption of governments in many undeveloped nations, there is nothing to keep the agricultural services sectors profitable which is what so many of these countries rely on. In other words, it is one of their only sources of income. In my opinion, I feel countries who continue to only rely on agriculture will continue to stay in the poverty trap unless there is another way to bring them into the economy. This poses the question: How do we get undeveloped countries out of the poverty trap if their biggest source of income is reliant on agricultural services? How do we expand their markets and make them producers of a different degree of products and services?
Posted by: Alecsander Horne | 09/17/2019 at 03:50 PM
This article discusses how the income disparities between fast growing economies and development laggards have widened in recent years. It is made quite clear that the fast growing economies have strong export centred development strategies whereas those stuck in the poverty trap have import substitution economic strategies. These development laggards, when they do export, typically export agricultural products or natural resources instead of industrial products.
What caught my eye however was the development in China and India. Both countries were both went through incredible economic policy reforms. China underwent rural industrialisation and proposed to fight corruption--two major factors many of the development laggards have not yet achieved. India is also fascinating because the government invested in R&D and was in favour of private businesses. It is interesting to contrast this with Ghana as they also invested in R&D, but through public institutes instead. However, they were unable to make significant contributions because they lacked the "critical mass" required.
Another point I found interesting and has been brought up in some of the previous blog comments is the idea of countries in poverty traps relying on agriculture exports. Are there ways we can invest in these countries to grow their industrial sector? These nations should have the resources to transition, but does the population want to? Does this tie back to our reading from last week, or from my global politics class, where we learned that people would rather live on their own land and farm instead of migrating to cities/factories and leaving their families behind? I think it is important when looking at data such as this to also take a look at cultural and historical aspects of the countries involved. Otherwise, it would be impossible for us to look for ways to improve the situation these developing countries are in.
Posted by: Alice Chen | 09/17/2019 at 09:03 PM
Before I read the Wang, Wong, and Yip article I had just read a portion of a report by the FAO about sustainable food and agriculture for another class. The report could not help but inform my reading of the Wang, Wong, and Yip article, and led me to question some of their conclusions a little bit. The Wang, Wong and Yip article underscored the importance of government policy in development. They argue that the state must support open trade policies, push towards an exports dominated economy, and promote high tech innovations and industrialization. All of these policies make sense to me except to some extent the necessity of promoting high tech investment and industrialization. It seems that there may actually be an avenue for development through innovations in agriculture, and in fact this may be a space where lag-behind and trapped economies could begin to pull forward.
They mention several times the failure of various states to move beyond an agricultural based economy and how this has either caused them to become trapped or lag behind the development of the U.S. and other countries. However, it seems not so much that the agricultural economy itself was the problem, but rather the reliance on just a few key exports. For instance, Kenya relied heavily on the exportation of coffee and tea, and when prices for these goods decreased dramatically it had serious consequences for Kenya’s economy. Moving towards a more sustainable agricultural system, where no one crop dominates, could lead to more stability for these agricultural societies without the need for industrialization.
As the world population continues to grow, more and more food production will be necessary. All agricultural societies need not be abandoned but rather invested in as a valuable resource for the world. Wang, Wong, and Yip argue for the need for “absorption, adaptation, and creation of technology” in a move towards industrialization. However, this innovation and creation of technology can be achieved through agriculture as well, and the FAO report, like the Wang, Wong, and Yip paper, argues that investment in technology is necessary for sustainable development. In the FAO report, they argue for increased access for crop farmers to markets through “capacity building, credit, and infrastructure,” as a means towards both more sustainable development in agriculture and ultimately sustainable development overall. The argument for increased access to markets actually sounds a lot like the main argument of the Wang, Wong, and Wip article--that institutional barriers are the largest factor in lack of development. Thus, it seems that societies need not necessarily move away from agriculture entirely, but rather focus on sustainable development of agriculture instead. This will set them up to feed a rapidly expanding global population, and position them for further development.
Posted by: Maisie Strawn | 09/18/2019 at 12:02 PM
Oops I forgot to include a link to the article-- Here it is:http://www.fao.org/3/a-i3940e.pdf
Posted by: Maisie Strawn | 09/18/2019 at 12:04 PM
I found it interesting how similar the different strategies pursued by the countries who have found economic success. The Asian countries especially seemed to follow a similar strategy of creating an export-focused economy with a strong manufacturing sector. Some of these countries were then able to pivot into the tech of financials sectors as well using this strong economic base. These countries seem to strongly support the pro-free business approach to development that was popular in the west for decades. It was clear however that this did not work for all of the countries. Some of the South American countries tried to unsuccessfully build manufacturing-based economies using import substitution strategies which backfired significantly. I have to wonder how easy it would be for these sub-Saharan countries to copy this model of the Asian nations who have easy ocean access and large urban labor forces. Many of these countries are focused on agriculture and exporting these crops or other raw materials. I think it would be interesting to see the effects of helping keep more of the value chain for these goods in the nation that originally produces the raw materials and crops to add high paying jobs to the economy.
Posted by: William Chapman | 09/18/2019 at 12:13 PM
Wang, Wong, and Yip provide an insightful analysis of the impact of institutional barriers on world income disparities. Perhaps the most unique aspect of their manuscript is their country-by-country examination of the socioeconomic factors behind each nation’s economic growth or lack thereof. By presenting the data on 10 selected fast-growing economies and 10 selected “laggard” economies and then briefly covering every country’s recent socioeconomic history, the authors prevent generalizations and recognize that institutional conditions are country-specific.
I found it particularly interesting that the 10 selected fast-growing economies are concentrated in East Asia, while the 10 selected laggard countries were concentrated in Africa and Latin America. This suggests that economic growth and institutional barriers (both the independent and the dependent variable in this paper) are influenced by region. Furthermore, the relevance of region as a factor in the analysis of institutional barriers’ effect on economic growth likely implies environmental, historical, and other exogeneous factors causing economic growth to be concentrated in some regions and not others. For example, it is possible that the poor institutions of the colonial era in Latin America continue to influence the region, causing it to experience corruption, protectionism, and instability of currency more than the European countries. Similarly, it is possible that the technology boom that boosted the economic growth of East Asian countries was a regional “domino effect” that started with Japan/Taiwan and then spread into surrounding countries. I think the economic conditions of a country have a lot to do with the economic conditions of surrounding countries, and I would definitely be interested to explore this concept at a deeper level.
In any case, the authors open the door to a more complex explanation for income disparity among countries throughout the globe. They also address the question posed in Todaro and Smith’s book of whether ending poverty and economic growth are goals that are at odds with one another. The answer appears to be, according to Wang, Wong, and Yip, that improving the functions of institutions and eliminating those that adversely affect economies is the key to achieving simultaneous reduction of poverty and economic growth. For example, the authors mention that the banking crisis is at fault for Kenya’s negative economic growth. If Kenya’s banking system was stabilized, not only would this stimulate growth, but it would also encourage people to save, which would ultimately reduce poverty. Additionally, improved infrastructure and industrial capabilities in Ghana would not only stimulate economic growth, but they would likely increase development of healthcare and education opportunities, leading to a reduction in poverty. Thus, Wang, Wong, and Yip’s research provides a foundation for reconciling the goals of economic growth and poverty reduction through an institutional improvement approach and through removal of existing institutional barriers.
Posted by: Olivia Luzzio | 09/18/2019 at 03:30 PM
While last week we read about how poverty looks different at a micro level, it was interesting to read this week’s article regarding how similar laggards and economies stuck in the poverty gap are. We saw in the previous reading that while people from poor households across the world allocated money differently than expected, they all relied heavily on agriculture. And not surprisingly, the common feature of laggards and countries stuck in the poverty gap is that they mostly export agricultural goods. On the other hand, the economies that have been doing well have focused on industrialized products, IT and research and development.
I understand that at a macro level things like industrialization, corruption, and open market impact the economic growth of a country, but I wonder if we can conclude that it impacts all the countries the same way without considering other cultural, social and political factors that hinder growth or the resources available in each country. For instance, could we just rely on institutional change and reformed economics policies to allow a country stuck in a poverty trap to advance where we also observe extreme inequality, political instability, civil unrest, or any country-specific struggles. Since we have been learning that poverty is not just a measure of the national income, I also wonder how the growing wealth has been distributed in the countries that have observed economic growth?
Posted by: Prakriti Panthi | 09/18/2019 at 03:36 PM
I found “Institutional Barriers & World Income Disparities” to be quite interesting and illustrative of the power of global trade on development while also showing the hindrances of unnecessary institutional barriers. One of the aspects of the paper that I would like to explore in more detail is the effect of imperialism on some of the African countries who were labeled as lagging behind countries with strong economic growth. All 5 of the “developmental laggards” from Africa were under some form of European rule until at least the late 1950’s. Ghana achieved political independence in 1957, Cote d’Ivoire was a French colony until 1960, Kenya became independent in 1963, Uganda was a part of the UK until 1962 and Comoros did not declare independence until 1975. My question is: isn’t it clear that this would have a direct impact on a country’s economic development? I am no expert on this topic, but one characteristic of imperialism in many African countries was the export of raw materials and thus wealth from these materials going to the European powers that colonized Africa, not to the African countries themselves. I wonder if that wealth had stayed in African countries and allowed to disperse throughout their economies, if some African countries development would be a bit further along in their development? Many of these countries have become dependent on agriculture and often only a few cash crops to support most of their economies (Cote d’Ivoire with cocoa, Comoros with ylang-ylang, vanilla and coconut, etc.) My question again is: if imperialism never existed in these countries and more wealth was available at the top of these countries, could there be more access to financial institutions which might allow more loanable funds to exist in the economy and thus people could specialize and produce services within their country rather than so much of their GDP depending on the export of raw goods? I would like to talk a bit more in class about the effects of African colonization on present day economic development and was somewhat surprised to not see it addressed in the article.
Posted by: Travis_Dover | 09/18/2019 at 03:49 PM
Wang, Wong, and Yip’s study aims to answer the question of why some nations develop faster/more successfully than others. Their study concludes that institutional barriers, such as government misallocation and corruption, for example, contribute immensely to widening income disparities in certain countries. One theme that stuck out to me was how certain countries’ economic conditions seemed to be either helped or hindered by foreign influence throughout history.
In cases when countries’ economies were helped, foreign powers helped to increase business infrastructure, which in turn gave way to those countries embracing export-led open policies. For example, a portion of Hong Kong’s immense economic success was thought to be attributed to the U.S. building production lines to produce American supplies during the Korean War. It is easy to see how Hong Kong’s garment and textile industries must have benefitted from the introduction of these mass production facilities. Additionally, Japanese rule in Taiwan before and during WWII was responsible for enhancing infrastructure, such as transportation systems, and making primary education a requirement. It appears that these improvements to Taiwanese society probably contributed to giving the people the capital resources to build an industrialized and technology oriented economy.
In cases where countries’ economic conditions were hindered, colonization appears to be at fault. For example the study mentioned that African countries such as Comoros, Ghana, Uganda, and Kenya did not gain independence until around the 1960s-70s, which is relatively recent. Whether it is a correlation or causation, these countries’ economies have also suffered due to a dependence on agriculture, lack of export diversification, and corruption. To what extent is the fact that these countries have recently become independent related to the fact that their economies’ are “trapped” in a dismal state or “lagging” behind other economies? Could African colonization be considered an institutional barrier that hindered the process of these countries’ structural transformations? If so, how could foreign countries intervene in a more beneficial manner like what was seen in Asia?
Posted by: Kate_groninger | 09/18/2019 at 03:49 PM
The article, "Institutional Barriers and World Income Disparities" goes in depth on the reasons for income disparities between two groups of countries, the fast growing economies and the development laggards.
A couple things stuck out to me while reading. The first was how similar the reasons were to why a certain country was either in the fast growing economies group or the development laggards. All of the fast growing economies had an export led open policy and some type of advancements in technology. The development laggards all had some form of corruption at the highest level and had agriculture at the head of their exports and in some cases their only export. For example Kenya and Ghana heavily rely on Coffee to fuel their exports and ultimately their economy while Côte d’Ivoire’s is in a similar boat but with cocoa as they're leading and basically only export. The agriculture driven economy is not able to function at a high productivity rate and income rate. There is a blueprint on how to be in the fast growing economy group but some of these countries just cant fullfil it. They know how and what they need to do but they physically cant because of the circumstances they are in which goes back to development as freedom. These nations do not have the freedom to be leading the export world because what they have to offer is not enough to boost there economy to where it needs to be. Its not just these two countries who suffer with agriculture as the main export it is almost all of the development laggards. What can we do for these nations and these nations exports to boost there economy? The corruption aspect also stuck out to me with these development laggards. How are the people of these nations suppose to thrive when the highest government officials are not putting them in a situation too. The social mobility is corrupt and something that needs to be addressed but at the same time I cant think of a way to fix either of these problems because I do not know if it is realistic to just change a countries exports or get rid of corruption within a nation.
Posted by: TevinPanchal | 09/18/2019 at 04:12 PM
I think that this article offers a very interesting perspective on some causes of development and what could be hindering countries from attaining a certain level of economic growth. I usually argue that education and health are the most important steps towards development because they are an investment in human capital and they should result in higher productivity. However, this article made me question this belief. I have realized the importance of political institutions on the process of growth.
The diagrams show a clear picture of how the world income disparities between countries have widened throughout the past decades. I was very surprised by the remarkable growth experienced by the “Asian Tigers” and how that contrasted with the withering of the “Trapped countries”.
When comparing all the countries chosen in the article, I have realized that there were some obvious common denominators for growing economies and common denominators for trapped economies. The former would be the adoption of policies that led to exported-led economies and the investment on industrialization, while the latter would be the corruption of the governments and the dependence on imports. I noticed that some countries had their own surprising steps that lead them to development that were not necessarily correlated to industrialization, technological advance, or opening to international trade. Mauritius is a great example of how a country can achieve economic growth just by improving tourism. I also noticed that China, while international trade played a big role in its growth, there were many other interesting transformations that were part of this change including rural industrialization, reform state-owned enterprises, and modernization of the banking sector.
Finally, I believe that most of these arguments seem valid and the evidence is strong. However, they should not be taken as the ultimate cause of poverty or economic growth. There are many other different factors that could have hindered economic growth in Africa and Latin America such as geography, colonial history, natural disasters...
Posted by: Kenza Amine Benabdallah | 09/18/2019 at 04:15 PM
I think that it is fantastic that we have identified certain avenues or polices that countries can adopt in order to develop quickly. The most important appears to be the diversification and industrialization of markets within a country, the relative openness of the economy and incentivizing foreign investments. These strategies work well but seem to only work well when there is a lack of institutional barriers. Institutional barriers, such as corruption and protectionist policies, limit the TFP and therefore make the positive policy strategies unachievable or null. In my mind, if you want to develop quickly and positively, with respect to GDP per capita, you need to remove institutional barriers quickly and adapt to a global market. My question, or rather concern, is one that isn’t addressed in the paper, is about the costs of the switch to positive institutions and the resulting economic development. What exactly are the costs, long term, and short term, of such a rapid shift in policy or government and the huge growth that many of these “miracle” developing countries experienced? One of the major costs that Wang, Wong, and Yip fail to address are the environmental and cultural costs of rapid development and globalization and I would love to hear more about them.
Posted by: Nicholas Tierney Watson | 09/18/2019 at 04:22 PM
This article seeks to find answers as to why wide income disparities have emerged across the world between fast-growing economies and development laggards, as well as the role that institutional barriers play in the emergence of such disparities. What I found most interesting was the question as to why some countries who had comparatively stronger foundations, like Argentina and Chile, ended up lagging behind in economic growth to other countries who were essentially worst off in the beginning but then experienced fast growth. Specifically for these Latin American countries, the articles blames the implementation of import-substitution industrialization (ISI) in creating barriers to the fast-growth seen in other countries.
I want to focus more on this policy as it led me to question some economic developments seen in the US and in some fast-growing economies today. I previously learned in my Latin American politics class that a major reason why Latin American countries implemented ISI was to reduce a dangerous dependency of their domestic industries on the international market for manufactured goods. They believed that ISI would allow them to regain a self-sufficiency by protecting domestic sectors, raising tariffs, and limiting the number of imports. Of course, as the article discusses, ISI fell short of brining self-sufficiency by creating high inflation and overall financial instability for these once strong foundational countries.
I think it is interesting how this protectionist policy of ISI proved to be a reaction to this sense of dependency on foreign markets just as much as Trump, today, has implemented protectionist policies to protect the US market from a dependency on China. For many Latin American countries, the economic reaction to dependency proved debilitating to growth. Will the same occur to the US following similar protectionist policies? China has proven extensively dependent on foreign markets and has actually reaped major economic growth by focusing on exports. So, to me, after reading the article and thinking of these policies, I was left with a final question of “Is dependency on foreign markets really a bad thing at all for economies?” I assume the answer is that it depends on the country and context.
Posted by: Sofia G. Cuadra | 09/18/2019 at 04:38 PM
"Institutional Barriers and World Income Disparities" explained the widening income disparity between countries as a result mainly of institutional barriers. The article selected 10 fast-growing countries, 5 economically trapped countries, and 5 countries that have experienced prosperous development but are not performing well recently. By analyzing these representative countries individually, the authors summarized elements that promote and impede economic development.
As the authors pointed out, fast-growing countries actually have similar levels of institutional barriers with trapped countries. It thus confuses me a bit how the paper can conclude from such data that institutional barriers trapped certain countries when they face comparable institutional barriers to rapidly developing countries?
The article presented several points that interest me. Firstly, it appears that many of the fast-developing countries started with labor or resource-intensive productions. It is reasonable since developing countries generally have little access to advanced technology that enables efficient production. To start developing technology, countries need to accumulate physical capital. Thus, a country’s resources, either labor or physical resources, become important. For countries with abundant resources like Botswana (diamond) and China (big population), initiating the accumulation of physical capital appear comparatively easy--as long as government policies adequately encourage such accumulations. However, landlocked countries with a small population and barren lands might be less fortunate. Now that countries with few resources available can no longer use colonization to acquire physical capital, it seems rather unlikely that such countries would gain enough physical capital to accelerate their economic development themselves.
Secondly, from the analyses of the lag-behind countries, I learn that a country should never depend on one economic source, especially when the price of that one source fluctuates irregularly. Many of the countries classified as “trapped” in this research article maintain an agriculture-based economy. Their technology remains undeveloped, so they interact and trade with the globe with cash crops. One dominant cash crop these laggards rely on is coffee whose price varied much in past decades. When the price of coffee drops, which it did, the economy of those countries crashes as well. Not only is choosing to export coffee an unwise decision, but also choosing to rely on agriculture in general. Agricultural products seldom stand out from other similar products. Countries exporting cash crops thus tend to be price takers, which increases the possibility that their economy would fluctuate with the market. Again, it may sound hypocritical to recommend trapped countries to diversify their economy--they are barely self-sustained. To diversify the economy, countries need money and technology to support the creation of new products. To accumulate money and technology for that purpose, countries need to rely on something that can earn them money. Before they acquire the capital to develop other exportable products, they have to rely on cash crops. However, cash crops prove an unreliable source of money, so poor countries frequently remain trapped in poverty.
Finally, almost all lag-behind countries exhibit rapid population growth. While it may negatively impact the economy in the short run, as there are more people to feed, in the long run, having many adults who can participate in the workforce can be advantageous. A capable government can allocate its population to industrialize more areas more rapidly. China, a country with the biggest population in the world right now, can serve as a good example. China started rapidly growing in the 1970s; policies that helped include setting economic zones to encourage direct foreign investment, making primary education mandatory to increase human capital, and supporting the development of technology. Similar policies aided other rapid-growing countries in the article, but China has another resource other countries may not own--a big population. With a big population, employers can set wages at a low level because the demand to work would remain high. Lower wages then help companies maintain low product prices that ensure their products’ competitiveness in the global market. A big workforce enables Chinese companies to accumulate more money from selling more products with higher profits, with which they can build more factories to employ more people and industrialize more areas. A big population actually helped China enter into a beneficial cycle of development. It may help trapped countries with big populations out of the vicious cycle of poverty.
Posted by: Beverley_xia | 09/18/2019 at 05:22 PM
The article by Wang, Wong, and Yip addresses the growing gap in GDP per capita between the top percent of advanced countries and bottom percent of poor countries. They elaborate on the differences in growth—or lack thereof—among the Asian Tigers, other fast-growing economies, trapped economies, and lag-behind countries. All measures used in the article are relative to the United States. The data explains how the fastest-growing countries are growing faster than the United States, while trapped economies are growing slower. I wonder about the implications of using the United States as a "standard" for distinguishing the speed and magnitude of growth. It seems this could affect the interpretation of the data in some way?
The country-specific analysis explored the circumstances behind each economy. I was astounded by the way most of the economies described were dependent on those of other countries for growth and stimulation, or for an example. Much of this dependency takes the form of international trade, foreign investments and policy. For example, South Korea’s economy saw rapid growth by imitating Japan’s economic model. Further, many of the fastest-growing economies opted for export-led policies, showing the importance of international involvement for economic growth. This dependency also took form in unique ways such as tourism. Both Mauritius and Greece saw benefits in the expansion of their tourism sector, which relies on citizens of foreign countries for success. However, not all international dependencies are positive. Brazil’s foreign debt has created a massive strain on its growth, and Thailand’s hostile international politics has contributed to their economic problems. As a whole, the article drew a clear picture of how dependent these economies are on one another.
Posted by: rrirwin | 09/18/2019 at 05:27 PM
Institutional Barrier and World Income Disparities offers a number of valuable insights on development around the globe and some of the characteristics of states that experience strong economic growth relative to those that are lagging. Though their measurement and analytical techniques were a bit confusing for me, a couple of key findings and questions stood out. First of all, this article seems to corroborate the argument that industrialization and infrastructural development are key factors of a country’s economic development. It seemed that the development of multidimensional manufacturing economies, particularly focusing in Technology, strongly correlated with high levels of income growth. Namely, Japan and Taiwan, experienced massive growth with the incorporation of these industries and foreign investment into their economy. In contrast, the nations that lagged characteristically remained focused on agricultural commodities and lacked diversification. These countries seem particularly susceptible to economic shocks, as described with the decline of cocoa prices, which severely harmed Cote d’Ivoire, and lacked manufactured exports.
The article compared across countries, particularly relative to the United States, but did not investigate disparities within countries deeply. In thinking about our recent class discussions, I wish they had gone more into discussion of factors of production such as labor and capital to describe where much of their investments were going, particularly to investigate if such economic growth was benefitting the entire population equally. I would ask about poverty rates in both lagging countries and the leading countries.
Posted by: Christopher Watt | 09/18/2019 at 05:39 PM
I found Wang, Wong, and Yip’s article about the economies of fast-growing countries and “lagging” countries extremely informative. The article helped me gain a perspective about why some countries are economically prosperous while others are falling behind. I think this is useful information for future policies in developing countries. Reading about the success of pro-market reforms of various countries made me hopeful that there is a way for these lagging countries to grow their economies too. Although these lagging countries face severe institutional barriers, I hope that one day their government cooperate in enacting major change.
I found the information on South Korea particularly interesting. Starting in the early 1960s, the South Korean government pursued a growth strategy that shifted their focus to exports and manufacturing. The country also pursued long-term investment in high-tech exports. South Korea is a prime example of how globalization and market-based policies can lead to tremendous economic growth. South Korea’s neighbor, North Korea, could have followed a similar pattern, but this is not what happened. Instead, North Korea’s government oppressed its people and the country’s economy suffered.
I also think that China is an interesting example. China made a tremendous progress by opening up its trade policies and is now the number-one exporter in the world. China’s economy has grown significantly, but wages are still extremely low. Has China really made progress if its growth is not benefitting its people? Would China continue to grow if the minimum wage was raised? While this article did a good job of showing the improvements China has made, it is important to remember that this is not the whole story.
Posted by: Caroline Florence | 09/18/2019 at 05:53 PM
“Institutional Barriers & World Income Disparities” is both interesting and non-assuring to me in a way that makes me feel confused as to whether I should be hopeful or pessimistic about the fate of the poor as we enter the third industrial revolution, with the emergence of AI and automation.
Countries that have changed their status drastically from “developing” to “developed”, “four Asian tigers”, “two emerging giants”, or “economic miracles” did so in a time where innovations were not as widespread and developing at a slower pace as the trend right now. Currently, almost every country is trying to have their finger on the most innovative capital that is introduced in the market. So, what are the prospects for countries whose people have little access to basic rights and decisions let alone embrace technological advances? If they lower the institutional barriers, their underdeveloped credit system might not be able to handle the strong inflow of capital and investment. Their people don’t have the necessary skills to utilize the technology provided to them through foreign investment. If they maintain the institutional barriers and focus on providing jobs for the poor, their economy will be lagging behind in terms of capital. Seeking the right institutional barrier balance requires time and a lot of trials and errors. Time is something they lack. Trials and errors are simply not something they can afford given their vulnerable population and economy.
However, I am still hopeful that international assistance will be able to provide developing countries with an escape from this dilemma. Subsidies and conscious efforts to provide the poor with enough financial assistance to sustain themselves will help strengthen the resiliency of a country, particularly its economy. People are every country’s greatest asset, especially developing countries. Thus, fortifying such an asset will help a developing country deal with economic issues in the long-run. Globalization has had both positive and negative effects on a country. Throughout my formative years in Vietnam, I got to bear witness to the drastic changes that this country has undergone under the influence of globalization. The country was plagued with corruption, business distrust, and a weak credit system in the early 2000s. Yet, due to the influence of globalization and global immersion, Vietnam got the chance to completely transform its economy. It has evolved from a mainly agriculturally based country to more industrially based. Adopting accounting policies and attracting the attention to big global accounting companies in the world, Vietnam has taken strong steps to eradicate business corruption. In 2019, Vietnam is making a conscious effort to change its accounting system to IFRS (International Financial Reporting Standards) to prove to the world that it has got what it takes to embrace globalization and earn the trust of foreign investors. However, it is hard to imagine how these achievements can be accomplished without the financial assistance from foreign countries and the eradication of abject poverty in the early 2010s. Some people have a doom and gloom view about a developing country’s future and have a disbelief in whether the financial assistance will make a difference, as in the case of Greece which have been in financial trouble for years and years on end. However, assisting a country is definitely not a bet of whether that country will succeed. It is actually the responsibility that we have as fellow human beings. And as human beings, albeit from a developing country or not, we have a moral obligation to always keep on trying and moving forward, and that’s why I am hopeful that the developing countries will one day find the economic stability and a wealthy (and healthy) population to stand on their own two feet.
Posted by: Danh Nguyen | 09/18/2019 at 06:22 PM
“If you were president, faced with a slowing economy, what would you do?”
— This is just one of the multitude of questions that people want the Democratic candidates running for president in 2020 to answer in hopes to see the U.S. economy improve.
And while Andrew Yang is pushing to give $1,000 per month to every American citizen, Elizabeth Warren is proposing a sweeping increase in Social Security benefits through new taxes on the wealthy, and pretty much everyone is laying themselves out to draft their own very best and at the same time very different from others economic plan for the country, experts state that the dominant economic question sparking debate within the Democratic Party is about the place of the private sector vis-a-vis government.
So you can probably blame it on the overviews of the Democratic debates that I’ve been recently reading on NBC News, but the questions that occupied my mind after I finished reading “Institutional Barriers and World Income Disparities“ all had to do with the role of government in the economy.
The question of how much the government should intervene in the economy is as old as time, as they say. However, when prominent economists take 10 fast-growing and 10 lagging-behind kind of countries and find out that in their development over the past five decades, “institutional barriers have played the most important role, accounting for more than half the economic growth in fast-growing and trapped economies and for more than 100 percent of the economic growth in the lag-behind countries,” regardless of political affiliation, one kind of starts sympathizing with the Democrats and wondering if in the end development mostly depends on the quality of decision-making on the governmental level. As Wang, Wong, and Yip summarized, all of the 10 fast-growing countries have adopted an open policy with an export-led development strategy. How did they do it? Seems like most of them created and followed a clear economic development plan such as the 1967-71 Five-Year Economic Development Plan of South Korea that made it shift from import-substitution to export-oriented industrialization or The Ten Major Construction Projects of Taiwan which was analogous to South Korea’s in its achievements. How do governments come up with those plans? Do they mostly copy other successful countries like South Korea did with Japan? In any case, it is clear that developing international relations, opening up markets and willing to learn and benefit from other countries are all integral parts of making an economy grow as is best demonstrated by the histories of Singapore and China. Then there is strong administration, smart policies, the ability to adapt to crises, and even the power of a single person that all seem to play a very significant role in a country’s development. In this respect, India was the state that has struck me the most. Its growth came much later compared with other fast-growing countries, and no wonder, as their government followed what Wang, Wong, and Yip call “restrictive trade, financial, and industrial policies.” Despite all that, the government was clever to invest in research and development along with human capital as it started programs for developing engineers and scientists. Then in the 1980s, something in the government shifted in favor of private businesses, and the country was able to see rapid growth in the economy by liberalizing both international trade and the capital market. This “something” that caused the shift to the government’s favor of businesses was the return to power of Indira Gandhi which made me wonder – how often is it that a single person creates such a positive change in the government that it subsequently impacts the whole economy? Also, India’s handling of the “well-known 1991 balance-of-payment crisis” (that I, to be honest, don’t really know much about and also would be really glad to learn and discuss the Asian crisis and the two oil crises mentioned in the paper as well) deserves praise as it provoked the reform that finally started the liberalization of the economy toward a free-market system.
To return to my main question of the extent of the role of government in the economy, in contrast, the “laggards” were overcome with such flaws in government strategy as unnecessary protectionism, government misallocation, as well as such pity misfortunes as corruption and financial instability – all of which suggests to me that even if the government wanted best for its people, it intervened too much, so mistakes were made and harmful practices took place. Now, does it have to be like that? The story of Chile’s Chicago boys suggests that if a country’s government is willing to listen to and even bring in talented economists from abroad like Chile did with Chicago economists, it can significantly boost its economy, and so it seems like human capital on the very governmental level matters tremendously. Could it be so that passionate, action-driven rulers are the only thing that other lag-behind countries need to improve their situation? Colonial past, population pressures, and corruption from which those countries suffer so much all can, it seems, at least in theory be overturned by the changes in the governing body. After all, Singapore once used to be an extremely poor country basically built on a “swamp,” but it was its first President Lee Kwan Yew and his aides who made Singapore a flourishing state that is now considered to be one of the richest countries in the world. By the way, if you haven’t read Lee Kwan Yew’s From Third World to First: The Singapore Story: 1965-2000, I strongly recommend, as he tells all about how they did it.
Posted by: Kristina Lozinskaya | 09/18/2019 at 06:46 PM
This article from Wang, Wong, and Yip categorizes countries into two groups based on their policy and development, over a time period and looks at the country's subsequent relative growth. These two categories are "fast growing" and "development laggards". The success stories from the fast growing economies contrasted against the lack of success in the development laggards offers an idea of how a government or state can use policy to progress a country’s economy. There seems to be a formula and pattern for success and growth. So, my question is: why is it hard for countries to follow this formula? The fast growing economies seemed to focus on policies that stimulated exports and specialization in diverse industries. For example, Taiwan’s implemented the Ten Major Constructions Projects which gave way to the export-led growing economy. This policy helped industrialize and gain a trade surplus. This pattern seemed to flow through most of the cases of fast growing economy.
Why, then, if there seems to be a formula for growth, do the lagging slow growth countries not implement similar policy. I think that there is just a slight disconnect in many of the “laggards” to what could have caused success. I think Brazil is a great example of this. Set aside the incredible amounts of corruption, Brazil started an intense import substitution program which took the society from agriculture to industry. A step in the right direction. It grew 7 percent in the 1950’s. Although here is where the disconnect in the policy came through. The government did not set up the institutions for export growth so Brazil started to rack up a large current account deficit which worsened as Brazil imported more for industrialization and the cycle worsened. Brazil started to experience incredibly high rates of inflation and Brazil is still struggling today. What I take from this case is the fact that they started down the right path of industrialization but lacked infrastructure and policy to export their goods. I’m sure that corruption and other factors played into why this did not happen, but Brazil seemed to be close to success. Had they had the right sort of policy to help export and create a trade surplus, then perhaps Brazil would be among the success stories.
Posted by: MarkLamendola1 | 09/18/2019 at 07:28 PM
The article “Institutional Barriers and World Income Disparities” made me think about how the Cobb Douglas production function can be applied to macroeconomic growth, as well as the development of specific industries within particular countries or regions. While reading the cross-country analysis of the ten "fast-growing economies" and ten "development laggards”, I couldn’t help but to think about Japan’s post World War II increase in economic growth that I learned about during my macroeconomic theory class. Japan’s growth was due to a breakthrough in production levels in its manufacturing and auto industries. The Japanese borrowed and improved upon many technologies and organizational structures that the United States was using at that time. These changes involved a period of de-industrialization and limiting exports of previously profitable goods, such as textiles. Investing heavily in the manufacturing industry lead to major productivity gains and eventually propelled Japan onto the global stage during this time. It was interesting to read that countries classified as “fast-growing economies”, such as South Korea and Taiwan, used similar technology and organizational strategies as Japan to increase their economic growth. I also liked how the authors consistently talked about the United States because it gave the reader a good unit of comparison.
Posted by: Julia Moody | 09/18/2019 at 07:40 PM
Wang, Wong, and Yip outline the steps that many "miracles" have undertaken to develop since the 1960s. The emphasis on an export-based manufacturing economy in the beginnings of the growth period to a more service-based, technological economy seems to be the common path for many of these countries. If these steps seem so clear, why are many countries unable to follow the method? The article speaks to the difficulties that many lagging countries face in implementing this strategy. I find the differences in issues between the countries that are lagging interesting. It is not one comprehensive problem that these nations face, it's more so the continued unrest throughout the past half-century.
I was also interested in the importance of globalization and global economic crisis that the article touched on. No matter the economic standing of these nations, most were affected by the internet bubble in the late 90s/early 2000s and the financial crisis of 2008. Globalization aided the fast-growing economies via the ability to introduce manufacturing that left the developing world. Based on the shift to a service economy by these fast-growing nations, it will be interesting to track the future of manufacturing. I know at least within the textile industry, manufacturing has moved out of China and into countries like Vietnam and Ethiopia. These may be some of the countries that are next to join the fast-growing economies of the world.
Posted by: Parker Skinner | 09/18/2019 at 07:42 PM
I was quite fascinated by this week’s piece about global income disparities by Wang, Wong, and Yip. While I’ve certainly been aware of the vast differences in global income before, I was not aware of just how big this wealth gap was and how much it has grown over the past couple of decades.
In previous classes, we have discussed how, all things being equal, this is undoubtedly the best time to be born into the world. With global health and well-being benchmarks like infant mortality and extreme poverty declining across the globe (including some the most challenging countries), I somewhat naively expected global incomes to be following a similar story. But clearly isn’t the case. While the 1960 per capita income ratio between the top and bottom 10% was already somewhat startling, I was mortified to see that this ratio had grown exponentially to 58:1. At this point in the article I found myself puzzled. What could drive this sort of extreme income inequality? How is inequality increasing at this rate when other global poverty indicators seem to be showing overwhelmingly positive results?
At this point, I was very curious to see exactly what was driving the world ever increasing income gap on an individual country by country basis. This is where the article really began to click for me. The first example of a fast growth economy that really caught my attention was Hong Kong. According to the article, Hong Kong had achieved a global reputation for its check manufacturing labor cost. While this is certainly a positive step for GDP growth and I necessary growth phase seen in more emerging economies, this is no way to becoming one of the fasting growing economies in the world. The article then points out that Hong Kong transitioned to a service-based economy during the early 90’s and has since become one of the largest financial hubs for Asian and the world. This transition to a from an agriculture or manufacturing based economy to a service one is clearly one of the most efficient ways to grow national incomes and make the increase in global income inequality more understandable.
After reading this, one question keeps coming back to me. While every country has the opportunity to fix corruption, promote financial stability, and cut back on government allocation, not all nations can be leaders in tech, finance, or entry the service industry in general. That’s just number. Thus I’m curious to see how the next few decades play out to see whether or not there is enough room at the top everyone.
Posted by: drewwoodfolk | 09/18/2019 at 07:50 PM