« Krugman for Friday | Main | Miracle on the Han for Friday »

09/24/2021

Comments

Claire Jenkins


This article was very interesting to me, and I think that it makes a strong argument regarding the role of institutional barriers in the development process for various countries. Wang, Wong, and Yip push readers to see the broader implications of government in regard to sustained economic growth. The authors show us that correct institutions need to be established; better access to capital markets, international trade, and industrialization are crucial for economic growth. The article made me think about just how intertwined politics and economics are. The authors identified unnecessary protectionism, government misallocation, corruption, and financial instability as key institutional barriers causing countries to fall into the poverty trap or lag behind other countries. Many of the development laggards experienced government corruption and inefficient allocation, as well as political upheaval, as opposed to governments that had undertaken serious reforms in labor and financial markets, like those of the fast-growing countries. The governments in many of these lagging countries are not working to implement initiatives like the Five-Year Economic Development Plan in South Korea or the Ten Major Construction Project in Taiwan. Political institutions are primarily the ones that have to enact these initiatives and policies to promote development goals. After reading this article, as well as Sen's piece, I think it is obvious that political institutions are key to successful development. I think this idea corresponds to a point that we have talked about time after time in class: rising GDP does not directly translate to development. Sen talks about development as freedom; freedom as a means and ends to development. Freedom requires the removal of major sources of unfreedom, such as poverty, tyranny, poor economic opportunities, social deprivation, neglect of public facilities, etc. Countries need to have stable political institutions in place that will provide political freedoms, economic facilities, social opportunities, transparency guarantees, and protective security. In this paper, Argentina is a prime example of a country lagging behind in development due to many unsuccessful interventions by the government; the country lacks a stable government that is able to push them towards development.

Claire Kallen

This article was very interesting to me. The authors pose interesting ideas about the institutional barriers and how government intervention can sometimes be unnecessary and result in misallocation, corruption, and instability. The authors also discuss specific examples of countries and where their main financial focuses lie.
The one specific example I wanted to focus on was with the study of Côte d’Ivoire. After 1970 Côte d’Ivoire had rapid population growth and a decrease in capital investments. The article says that they were dependent on raw commodities, more specifically cocoa. Over the past 40 years cocoa has become the dominate crop in Côte d’Ivoire. Raw cocoa accounts for 80% of commodity exports, more than 50% of all the exported goods and services and 21% of GDP. It does not seem like it was a good idea to have one crop hold such a stake in the country’s economic health. Cocoa is also a very labor intensive crop, it takes seven years to finish the planting process and the land is not able to be used for other crops. Because of how much investment is involved in farming this crop it is not very profitable. Côte d’Ivoire government policies further complicate this process. The terms of trade had been deteriorating since the 1970s and on top of that, cocoa prices fell international. All of these factors led to failure.
There seemed to be a theme throughout the reading that a lot of countries picking one main product to focus on that would end up having too much stake in its financial development. In Kenya they were relaying on petroleum but with two major oil crises they struggled as well. As seen with Côte d’Ivoire it is not a safe option to only relay on one product, especially one that is not very profitable such as cocoa.

Sally Ennis

I really enjoyed the approach that the authors took in explaining the different income disparities in the varying countries. I first want to point out the use of the graphs as a way to support the argument of institutions providing barriers in development between the different countries, especially in the separation of the fast-growing, trapped, and lagging countries. One particular country I want to focus on is India because it really shows what the impact of institutions have on the development of the country. If you analyze the graph you see that they were behind in growth largely because of the government’s role in the economy as it restricted trade and other policies. However, when the government began to become less involved in the restriction and investing more in an open market for trade and capital, they saw extreme growth. Lastly, I think that the IMF’s emergency loan pushed out the last remnants of the restrictive institutional barriers on the economy. I also found it interesting that in the findings from each of the groupings of countries there are distinct differences in their approaches to growth. If we go back to last weeks discussion about the high development theory and the concept that modernization requires modernization, the trends in these countries roughly follow that model: in the fast-growing countries they focused on increasing exports and shifting to more industrialized economies rather than traditional. On the other hand, we see the countries that are stuck in the trap largely use agriculture as their main form of income, but when there are conflicts that arise in either the government or the global market, the exportation of goods fluctuate and negatively impact the countries economy. This demonstrates that in countries that experience corruption, government misallocation, or solely utilize their agriculture leads to much higher levels of financial instability.

Jacob Thompson

I thought this paper was a very interesting read and provided some solid insight into how different policies and institutions affect the overall development of a country’s economy. One trend I noticed in the countries that lagged behind is that many of them are somewhat recently independent. This raised the question for me, to what extent (if any) should more developed countries intervene with and/or assist newly independent countries as they make the transition to developing their own institutions and policies? The first scenario that comes to mind for me is America’s involvement with the restructuring of the Japanese government after World War II, and how Japan is now a very efficiently operating country. However, I’m still not sure how much of their development can be attributed to the involvement of the United States, and think it’s a very interest topic to discuss as a whole. Another aspect of the paper that I found interesting was the emphasis on the importance of an export-oriented economy for developing countries. While I understand how an export heavy country can quickly gather the means to develop, I’m curious as to how some of these laggard countries could implement this policy. For example, the Cote d’Ivoire focused very heavily on exporting cocoa, but struggled once the market for cocoa took a hit. I’m curious as to how they could now shift their focus to a more industrial and manufacturing based export policy rather than agricultural focused, or if that’s even a realistic option at all.

Ella Hall

I found the similarities between countries experiencing similar rates of growth. One similarity I noticed within the fast-growing economies I found particularly interesting was some of the countries’ connections with other developed economies. For example, South Korea had a close connection with Japan. South Korea mirrored the business structure of Japan, and even required students to study Japanese. The article also notes that South Korea benefitted from international lending as a means of recovery after the Asian financial crisis. Similarly, Taiwan was influenced by the United States and the investment of US firms in the IT sector of Taiwan’s economy. These countries were interesting because it appears they relied on another specific country, which helped their economic growth. However, other countries, like China for example, benefitted from opening their economy up to international trade. While China did not have this sort of mentorship relationship with another country, they benefitted greatly from interacting with other countries through trade. This makes sense considering our previous discussions about the importance of a large market to sell the goods the country is producing. The importance of having a relationship, whatever that might mean for a particular country, with other nations is obviously important for fostering fast-paced economic growth.

Valerie Sokolow

One of the things I found interesting were lagging countries that had seemingly been in an economically advantageous state but hit various obstacles that kept them trapped. In the paper, it is noted that Ghana had a very diverse and robust manufacturing sector in 1970 following the launch of state-owned import substitution industries. This seemed like a great set-up for the country to be able to thrive, but non-selective industrialization policies behind high barriers of protection kept them from developing “adequate industrial capabilities and infrastructure.” Kenya also seemed to follow a similar track. After gaining independence, Kenya experienced rapid growth until the 1970s when it slowed down due to oil crises. The paper notes that these crises were especially bad for Kenya due to the high dependence on imported petroleum. In both Ghana and Kenya, there seemed to be a positive trend until the 1970s, when both economies stopped expanding at a high level, and have since been trapped. Ghana’s slow was caused by non-selective industrialization policies whereas Kenya’s was caused by an over-dependence on oil. This contrast, while not perfectly opposite, outlines the careful balance that needs to be pursued in developing economies.

Ben Barbour

The article “Institutional Barriers and World Income Disparities” did a really good job explaining exactly what causes some countries, such as the four Asian tigers, to succeed while others fell behind in development. I think this article makes itself a lot more enjoyable to read by including summaries of the exact scenarios the countries in their data faced and why they improved or deteriorated. For the fast-growing economies, I was not necessarily surprised, but interested at how many of those countries focused on technology and exporting as the main source of growth. On the other hand, I was a bit surprised that Botswana was one of the fast-growing countries mentioned, with a huge emphasis on their mining capabilities. When reading this article, South Korea, China, and Hong Kong were all countries I was familiar with their fast-growing economies, but Botswana was a country I had not heard of. In addition, with such a high AIDS rate in Botswana, I agree with the author that they should be considered the African Miracle.

I have only talked about my thoughts on the fast-growing countries up until this point, but the most interesting thing about this paper comes from the development laggard countries. Brazil, Chile, and Argentina are all countries that I am learning about in a Latin American Economics class currently, and the similarities between what the paper states and what I have learned are strikingly similar. When it comes to Brazil and Argentina, their economies are not stable and the paper did a good job at mentioning that. I really appreciate the number value of how much Brazil loses to corruption, but I also think that the corruption leads to more problems than just a financial value. The corruption can affect education, mortality rates, and other factors of society that are a big part of what's holding Brazil back. On the other hand, Chile is really surprising to me that they fit in the laggard section of this paper. I knew that Chile had one of the most stable, healthy economies in Latin America, but I did not know the problems Chile previously faced. This is really interesting because it can show that how a country functioned in the past and the issues that country had can end up being a thorn in its side for decades to come. Overall, the paper does a great job at categorizing exactly what countries did to improve themselves, and what other countries may have done to not improve their situations.

Sarah Beaube

I found this article to be very interesting, especially in relation to Wednesday's reading from Sen.

To begin, I found the discussion of the three Latin American and five sub-Saharan African countries ("development laggards") to be especially interesting. As is mentioned in the article, many Latin American and African countries have suffered from historical challenges that have hindered their growth. These challenges include high levels of inequality, political instability and corruption, racial tensions, and a vulnerable integration into the global economy. I also noticed a trend in countries that only recently declared independence (Comoros, Ghana, Kenya, Uganda) -- these countries have not had a long time to grow and gain experience in the global economy.

I believe that vulnerable integration in the world economy is something important to further discuss. An example of this is African and Latin American countries' vast dependency on exports with low added values. Moreover, these countries tend to lack a diversification of activity, which provides deep economic trouble if your main export (for example, cacao in Cote d'Ivoire) struggles. Each of these struggles highlights a lack of development within the countries. As Sen would argue, this lack of development coincides with a lack of freedom. In order to promote development, I believe a much greater emphasis must be put on both freedom from (ex: corruption, persecution, unfreedoms) and freedom to (ex: invest in one's economy). This lack of institutional or governmental protection of freedoms relates Wang, Wong, and Yip's argument that institutional barriers play the largest role in developing an economy. For these countries to flourish, they need to enact developing enhancing factors. But how is this feasible when these "development laggers" face such vulnerability in the global economy? Is it developed countries' duty to assist underdeveloped countries to grow their economies? There is both a moral and economical argument for this.

Chaz Cunningham

I found this article to be very informative of the development factors that both increase and slow down economic growth, or relative income in this case. I think the structure in this text made it easier to understand the concepts behind the data results by first learning the data parameters and framework given by Wang, Wong and Kip.
A particular case that stood out to me was that of Mauritius. Mauritius is seen as an African "miracle" due to it's rapid climb in relative income starting in 1968. Out of the fast-growing countries studied, Mauritius was the one country to bounce back substantially after a period of relative income decline. An insight I took from this is the extent to which industry reform can change an society's economic growth. This article discusses institutional barriers and how policy reform is so closely linked to economic change. I think this was a good example of how Mauritius changing its business focus from sugarcane agriculture to tourism services was much more economically beneficial in the long run. This reminded me of our discussion the other week of how many poorer countries find themselves trapped in reliance on agricultural business.

Brad Stephenson

The connection between foreign intervention in economic markets and development is an interesting relationship. South Korea and Taiwan both received significant help from Japan and the United States, financially and technologically. While investments from these two countries did aid in South Korea and Taiwan’s development, both countries already established efficient financial institutions with a concrete plan for growth. This leads to the question of whether financial and technological investments in developing countries can contribute to GDP growth in countries lacking efficient financial institutions. Wouldn’t inefficient, corrupted institutions misuse the investment and fall back into a development trap? I feel that this may be a distinct possibility, with the leaders in charge of the country reaping most of the benefits from the investment. So, what is the responsibility of economic superpowers? Should these countries invest in reforming these institutions and sending agents of change over to these trapped countries? Can superpowers create institutional change in countries that may not want intervention or the proposed reforms?

alliengfer

I thoroughly enjoyed this reading, and I now feel as though I understand the gravity of institutional barriers in understanding how some countries have been so successful while others have remained so trapped. Furthermore, I appreciated the authors’ mention of China’s export-led development strategy and internal structural transformation which we have been discussing in class. The article clearly demonstrated the success China experienced after it began focusing on the biggest possible market through exports in the 70s. I also found it extremely interesting just how influential an open policy with export-led growth strategy is on economic growth, for every single one of the ten fast-growing countries have adopted this plan. Additionally, while the article attributes much of China’s economic growth to an increase in exports, they imply that China’s utilization of Lewis’s Two-Sector Model played a significant role as well, specifically in providing a foundation China could build this new growth-strategy on. As we discussed, a focus on policies for rural industrialization in order to bring the marginal product of labor in the agrarian sector to zero is a crucial strategy for economic success.

Gavron Campbell

This paper did a wonderful job of breaking down the barriers that countries may have faced as a collection or individually. Additionally, “Institutional Barriers and World Income Disparities” visually depicted many of their data points to help illustrate either the gaps in GDP or relative income of the Asian tigers, trapped countries, other fast-growing countries, and Lag-behind countries. When I would initially think about the growth gap, I grouped all the countries into one perspective without considering government intervention, technological innovation, or history. I also thought it was interesting how strict institutional barriers in the lag-behind countries delayed their process of transformation.

I was most intrigued by the in-depth analysis of each country, specifically Brazil. I had no idea the intense inflation Brazil experienced between 1973-1991, which was an annual rate of 30-40%. The author pointed out how corruption was a pivotal piece in their falling economy, and specifically said it costs them approximately $41 million a year – I’m curious how this number was estimated exactly. Brazil’s other major problem was their tendency to import more than they could export, and eventually building up an insurmountable account deficit. This then led to their extreme rise in inflation, a problem that many other countries faced, like Argentina who had even worse inflation.

Max Thomas

Reading this article, I was particularly interested in how “lagging” economies can accelerate their growth rates, and whether technological innovations are a viable avenue. Considering the failure of government institutions in lagging economies, I would worry that overregulation of technological sectors would limit its viability as a solution.

Additionally, I worry that assortive matching would reduce available human capital in lagging nations, making technological innovation a difficult avenue to pursue. Because limited infrastructure exists in these lagging economies, these nations would likely require extensive foreign aid to develop a self-sustaining technology sector.

I worry that without developing modern technology-focused economies, many of these lagging nations could remain stuck in their current poverty trap.

Kevin Thole

I found it interesting how the article discussed how economic growth depends on both technology and institutional factors and that a lack of one or the other contributed to some countries lagging or being stuck in a poverty trap. I found it interesting how the main difference between the fast growing countries and the lagging countries was trade policies. Open, export-oriented economies grew the fastest and closed, import-substitution economies did not grow as quickly. I wonder what the middle growth countries look like and whether or not they have similar policies. For example, perhaps import-substitution policies correlate heavily with mismanagement of debt and perhaps that could have led to not optimal outcomes.

Teddy Bentley

This article by Wang, Wong, and Yip was very effective at explaining the role of institutional barriers and TFPs using examples from the real world. Seeing the disparity between different countries provided a great picture and introduction to the trends of what makes a country successful in development. In seeing the success stories of some developing nations, it is clear how they were able to develop successfully through manufacturing and diversification of resources. But most important to their success, was the country’s leadership in allowing development to happen. For example, in Côte d’Ivoire, having a country that is one of the most corrupt in the world is going to seriously hinder development. This compares nicely to China and India and explains how there is such a disparity between the two. While China and India have great access to valuable resources, their strategy to development was succinct and cooperative with institutions. Leadership in the country shared the wealth and incentivized correctly. In a country with extreme corruption, that is likely to be the complete opposite. A country can only successfully develop when its leadership puts institutions in place to allow the people to become more productive and that is what this article explains so well. Additionally, I thought it was very interesting seeing the how imperialism affected the poorer countries. Countries that are at the back end of this model are the ones that are most recently freed. Mother countries took advantage of colonies for hundreds of years and that imperialistic advantage has left these countries feeling the effects even to this day. Lastly, I thought the comparison to US GDP was a great tool to help understand the piece. It made the content very digestible for the reader to be able to refer to information that is very familiar to us.

Matt DiTondo

One thing I noticed in this article, and the class in general, is how there is no tried and true playbook for development. There is quite an element of luck or randomness to a country achieving growth ahead of its peers. This is evident in things like factories set up to supply GIs kickstarting Hong Kong's economic development. Or in transfers of American technology to Taiwan, which has now led the island nation to being a key player in the modern global economy thanks to its hyper efficient and advanced production of microchips. Without an outside actor to get the ball rolling, would these countries be where they are today? In many of these countries there was a similar strategy: bet heavily on a key natural resource and use that to fuel the broader economy. And for Botswana this led to them being the "African Miracle." Yet, for the Ivory Coast this bet failed, and the country has lagged behind ever since. In most cases it seems that this bet is a losing one, as we talk about in other economics classes with the Dutch Disease or Natural Resource Curse. The only delineating factor seems to be the one we understand/are able to address the least: institutions.

Matt Condon

This paper’s methodology of taking a closer look at each individual developing country is a highly effective way of considering development, as each country has specific problems that need to be addressed in order to make more freedoms available to its citizens. However, this method of thinking about development can also be overwhelming, as it opens the door to the wide range of possibilities that could be inhibiting the economic and social progress of a country. One specific issue that plagues many developing countries that this paper presents is corruption, which I think is often overlooked in the conversations about development. Perhaps this is because corruption does not directly involve food shortages, clean drinking water, health issues, or other typical issues that come to mind when examining the progress of a developing nation. Corruption can stifle economic growth, and it points to a frequently overlooked step of development, which is the creation of strong legal institutions. Corruptions can and will continue in developing nations unless there are systems put in place that are both able and willing to prosecute corruption and cannot be bribed. However, systems like these do not frequently occur organically. The World Bank has recently addressed the issue of corruption in developing nations, and they emphasize the need of reforms to build stronger institutions with greater degrees of transparency in the short run. Hopefully, these institutions can help foster the long run solution of changing the culture of each nation against corruption, so that bribery and robbery of potential investments in human capital are no longer the norm.

https://www.worldbank.org/en/topic/governance/brief/anti-corruption

Mary Wilson Grist

By providing concrete examples of the 10 fastest growing and other trapped and lagged economies, I think the authors painted a clear picture of their findings about the effects of institutional barriers. While I have often heard about this increasing disparity over the past few decades, the concrete examples and glimpses into each economy were very insightful. However, one question I have is what we are supposed to do about this disparity. It is clear that one of the most prevalent characteristics for a fast growing economy is the ability to export. However, not every country can be an exporting country - people need to specialize and consume the products being exported in order to sustain the process. While I don't think the authors are suggesting that this is the solution to the gap, what are ways we can elevate the economies of these lagged or trapped economies without making them exporting industries?

The comments to this entry are closed.