I thought the paper was interesting, but I am always a little skeptical when there is cross-country analysis which the author also acknowledges.
I thought it was interesting how the paper concluded a very pro-market and pro-globalization. This seems to be pushing more of a certain set of ideas rather than being honest. Because I think there are examples where too many pro-market and pro-financial institutions do not help the countries and even if there is growth, a question still remains about the quality of people's lives.
I would say Ivory Coast is underdeveloped exactly because they are too pro-market and too little government intervention has happened, which allows for the land to be exploited while companies rake in billions in revenue. One thing I found out recently is that the Federation of Commerce of Cacao which is in London dictates who the coca can be sold to. Without exploiting the Ivory Coast, the companies could not bring so much profit and prosperity to countries like Belgium or the U.S. (through companies like Nestle, Ferro, etc.) China and South Korea, without very strong government intervention which is not exactly pro-market allowed them to prosper.
Of course there has to be a balance between government intervention and pro-market policies. It does seem to suggest that tapping into global trade is one of the best ways to boost the economy, which is very cool. Still, also when we consider the environment and the vulnerability of the system to things like a global pandemic we should think of ways to protect the intricate system.
Latin America is also particularly interesting because of the U.S. meddling, especially with the support or instigation of coups, so it would be hard to decouple the economic development progress from the political interventions.
I am a bit confused about how to interpret the results of tables 2 and 3, particularly the Growth Accounting- Institutional barriers column. I don't quite understand the mechanism that would connect barrier to positive (or negative) economic growth. It seems that barriers are helpful in the fast-growing countries, responsible for about half of growth, while in laggard countries barriers are responsible for lots of economic growth, with failure in the other categories holding them back in other ways. I am not sure how to interpret these results.
It makes some sense that import substitution is less effective than export-led substitution. The potential market of the entire world is much larger than any domestic market. It is also difficult to stop protectionist policies once they start; if a domestic heavy industry does take off and employs a good share of a countries population, the company owners and workers will not want a government to remove those protections. Protection producers, who only make up that share of the population while raising prices everyone else who consumes imports.
It is hard to make statistical conclusions with only 20 case studies. Lacking statistical evidence, it makes sense for a development plan to "copy greatness", and emulate strategies that have resulted in success.
This paper illustrated the tragic differences between countries that are lagging versus high growth countries. The comparisons of countries and how those lagging was partially due to oppressive governmental power or a previous war drew me to the idea of colonization. In my literature class last semester, we read a piece titled “How Europe Underdeveloped Africa”, by Walter Rodney. Essentially, Rodney argued that underdevelopment or the lagging of countries is a result of capitalist, imperialist, and colonial exploitation. While this paper emphasized that many of the same countries started on the same economic fronts, the systemic inequalities and discrepancies were always meant to under-develop the lagging countries. My argument is that it is not just lack of infrastructure and inadequate education and healthcare policies that drive the decline in economic growth. Rather, it is a combination of infrastructure and the high growth countries’ previous colonial dominance that has caused countries to remain far behind. For example, in many African countries, African wealth created by African labor and African resources were grabbed and sold by capitalist European countries.
Another point I want to explore is if underdeveloped countries stopped their primary exports and halted their thin market dominance to high growth economies, would big superpowers or emerging countries have the same amount of economic dominance? My assumption is that they have enough money to take over these smaller industries, but the geographies of these smaller countries create natural resources that may not be found in high growth countries. I found the two case studies of both Botswana and Mauritius especially interesting, as they go against the social norm of how countries in this region are perceived. Although, it is disappointing to read that Botswana could be ahead of its current state if it had access to proper AIDS medication. This example emphasizes the basis of living through access to health and education programs to allow economic growth from generation to generation. Although, it is disappointing to read that Botswana could be ahead of its current state if it had access to proper AIDS medication. This example emphasizes the basis of living and investing in health and education programs to allow economic growth from generation to generation.
I thought this paper was an interesting comparison into what makes the difference for countries with fast growing economies versus those that lag behind. However, I think the final conclusions lacked a little bit of depth. Specifically table 4 and its summary of Development-retarding factors. Financial Instability and corrupption just seem like obvious factors that would slow down developent in a country. I felt that the development-enhancing factors such as the expport-led open policy and high-tech promotion provide more valuable conclusions. These conclusions seem more likely to influence policy. Overall though, I feel the paper lacks a bit of specificity in its conclsuions, and the case studies do not fully align with.
Some students have already begun to highlight this, but it is important to understand that lag-behind and trapped countries often have had a history of oppression, recent political transition, or recently gained independence.
I am interested that certain countries have similar or even better development than some of the fast-growing economies, but how they develop differs resulting in “less-desirable aggregate outcomes.” It makes me question why they don’t look to successful countries or “economic miracle” countries and implement their system. The paper distinguishes this is because of institutional barriers. Economic miracle countries, like Japan, had low corruption, was fairly peaceful, and went through economic, social, and political reforms. There are clearly recipes that promote growth, and not all countries have access to it due to these barriers. It sounds like it is difficult to overcome them without intervention. There are already institutions in place to help like the World Bank and IMF, but they are now being relied upon to fuel the economy which is not sustainable. That brings up a question, do we have a responsibility to provide support? Is more support needed or should there be a different approach?
My overall takeaway is lag-behind countries are trapped by inflation, dependency, national debt, location, traditional economy (agricultural), corruption, low FDI, etc. The paper does a good job of summarizing it up in the table on page 276. Fast-growing economies are open policy with export-led development strategies, set up the environment to promote FDI, made reforms to labor and financial markets, and shifted to capital-intensive and high-tech activities. All which make the economy more productive.
The reason the United States has been able to become so powerful is because it is bordered by two relatively weak countries and is separated from the rest of the world by massive bodies of water, alleviating security concerns and external pressures. Obviously, it’s not that simple, but it doesn’t have the same issues as everyone else, so it is almost unfair to compare other countries to it.
Like last week’s paper, I think this one too does a decent job explaining an overview of the problem at hand: Severe institutional barriers hinder the development of countries. However, there are multiple considerations that are neglected in this paper as it concludes that the development of “correct” institutions for capital markets, international trade, and industrialization can solve the issue of poor economic growth.
One such neglected consideration is how culture influences bilateral trust among countries. This is an important question to answer because cultural similarities can greatly affect international trade and investments. In a paper by Guiso et al., the authors discuss how the fraction of years a country was at war significantly reduces how much another country trusts it. Similarly, other cultural proxies in the paper (e.g. common language, distance, common border, religious similarity, somatic distance, and genetic distance) also have a relationship with trust. In the paper we are looking at this can be seen with the “Asian Tigers”; all in the same region of Asia with very similar cultures. On the other hand, trapped countries and lag-behind countries are also those with similar cultural and geographic backgrounds, additionally all seem to have some sort of a war-like history in recent years. So, it is not shocking to believe that the developed world does not want to trade as much with these or even invest in them. Additionally, reverse causality is also very plausible, wherein because other countries don’t want to engage on high economic levels with these countries due to the lack of trust, they continue to economically deteriorate. Therefore, increasing international trade is not crucial for their development, rather forming trustable institutions which focus on eliminating corruption as well as promoting local businesses etc should be Step 1.
"Institutional Barriers and World Income Disparities" clearly identifies case studies of country-level economic growth and stagnation since 1960 at an international level, but the article seems to lack nuance when considering reasons for stagnation, in particular. Institutional barriers, such as a lack of infrastructure, corruption, healthcare, and education certainly are correlated with countries who have struggled to develop or grow their economies. However, institutional barriers seem like a confounding or mitigating variable in this analysis. While the aforementioned components of institutional barriers are death knells for development, these conditions did not form in a vacuum. The lack of discussion about colonialism and its use to extract resources, both human and natural, from now postcolonial states is concerning. It is certainly true that such countries face serious barriers to development, but these generally emerged from a history of subjugation and these countries' inability to self-determine national economic destiny until the 1960s and 1970s (and according to some, still cannot).
However, the pro-trade and institutional reformist reasoning for understanding vast economic growth across top performers is a convincing one. India's growth of R&D investment and past liberalization of international trade shows how the adaptation of a once agrarian nation to a modern, industrial one is a lodestar for development. Cases like Mauritius are heartening, but stand out as unique due to the ability of the country to open up ecotourism. Frankly, many developing nations do not boast the same natural resources and beauty to attract international travellers at the same level. While the various cases given in the article are interesting and do promote the argument for globalization and liberalized trade worldwide, the cherry-picking of examples does lead me to doubt the generalizability of the authors' findings. It is true that the "establishment of correct institutions" should lead countries to higher achievement in development, this oversimplification shrugs off nuance and does not offer policy implementation perspectives.
Wang’s “Institutional Barriers and World Income Disparities” discusses a comparative case study of several rapidly developing economies and other economies which have economically stagnated, whom he refers to as “development laggards.” Wang’s discussion emphasizes the inability to hurdle crucial institutional barriers, such as government misallocation, corruption, and financial instability, as the primary contributing factor to the widening of income disparities between fast-growing economies and development laggards like Kenya and Brazil. Such institutional barriers hinder the process of structural transformation and economic development, leaving countries without a “sustainable growth engine” (Wang 259), despite many of them being in a better state five decades ago.
In addition to institutional barriers, Wang highlights relative total factor productivities (TFPs) as another key factor in fast-growing countries’ ability to grow faster than the US and for trapped economies to grow slower than the US. To this point, I found it interesting that almost all of the development laggards have relative TFPs below 1.
All of the fast-growing economies that were studied have adopted an open policy with an export-led development strategy. For instance, Hong Kong transformed into a service-provider economy, shifting from manufacturing to trading. It consequently grew to become a major financial center in the 1990s. Singapore similarly became a world technology leader by the late 1990s as a result of pursuing a high-wage policy during 1979-84 to shift production away from labor-intensive to both capital-intensive and high-tech activities. Taiwan’s relative income rose steadily over the entire sample period, and its economy became industrialized and technology-oriented, much like Singapore’s economy. Specifically, major construction projects were implemented in Taiwan's economy, which helped it transform into a growing, export-led economy. Malaysia is yet another nation whose economy has grown tremendously, as it became the largest Islamic banking center in the world (Wang 268). Malaysia overcame institutional barriers by transforming its predominantly mining and agricultural-based economy to a more multi-sector industrial economy. Implementing the New Economic Policy in 1971 was a major contributor to Malaysia’s urbanization and rapid economic growth. Finally, taking advantage of high animal spirits and a high willingness to take risks helped contribute to Malaysia’s ongoing economic growth.
Conversely, development laggards such as Kenya have experienced a widening of income disparity between their economy and that of the US over the entire sample period. Kenya specifically experienced rapid growth following its emergence as an independent nation in 1963; however, its GDP is highly reliant on coffee production and oil imports, which are both sensitive to supply crises. Brazil is famous for its corruption, as its corruption alone costs Brazil an estimated $41 billion a year. Due to this, Brazil grew to the point of catching up with the US before the mid-1970s and has stagnated since then.
Wang’s piece threads a revealing theme: those dependent on imports are subject to the success of other economies and are at a greater risk of stagnating or becoming classified as a development laggard nation, while those with strong export systems tend to be more resistant to economic stagnation. All fast-growing economies have undergone serious reforms in both labor and financial markets, such as establishing correct institutions and individual incentives to promote the health of and access to capital markets, international trade, and industrialization (Wang 276). They have also implemented various effective industry policies that complement their competitive advantages. On the other hand, those countries that have fallen into poverty traps have adopted import substitution policies that attract foreign investment through protected markets. Unnecessary protectionism, government misallocation, corruption, and a lack of export diversification and production sophistication all contribute to the stagnation of various economies. The development laggards are not only stagnating in their economic growth due to these causes, but they struggle to catch up with rapidly developing countries due to these factors acting as barriers to capital markets, trade, and industrialization.
This paper helps reinforce but also expand on much what we think about how strong economic countries have developed, as well as how the lagging countries have stayed behind. Institutional barriers that continue to trap countries into poverty seem difficult to overcome, as foreign investment is essential yet will avoid poverty-trapped countries.
What intrigued me most about this paper were the mentions of South Korea and how the country focused on export oriented growth, and thus became one of the Tigers of Asian Economic Development. From the 60s throughout the 80s, there was a clear shift in Korean economic goals, moving from import substitution to export oriented manufacturing, and high investments into technology (regardless of the scare of overinvestment in the 80s).
Although the article mentions the chaebols (conglomerates) briefly, I wish it dove deeper into the sheer influence that these chaebols had on the country's economy, because chaebols and their companies make up most of Korea's GDP. Despite their grand economic contributions, chaebols are constantly called out in Korean media on their corruption in politics. For example, former Korean President Park Geun-Hye was removed from office in 2017 for taking bribes from chaebol families and their companies. BUT, this corruption has a history in Korea. After Chun Doo-Hwan's military uprising to power in 1980, students protested militia rule, and the military proceeded to kill at least 2,000 citizens within a couple of weeks.
To clarify, I'm talking about this because I am interested in how Korea has continued to develop so rapidly, despite all of this corruption. The article talks about how the lagging countries have issues with corruption and war and other institutional barriers, and thus other countries are hesitant to invest. I'm interested in the miracle of the Korean economy: how foreign economies overcame what they thought the countries corruption? the influence of the chaebols? If the Carter administration's involvement in suppressing the 1980's Gwangju protests has anything to do with this? I wish the article elaborated on these issues more, but of course, there are many articles about these subjects.
I am confused about the economic development of Chile. In the very first line of the section, the paper states that Chile’s relative income fell during 1970-2001. However, the second paragraph in that section talks about very positive outcomes that resulted from the Chicago boys and Chile’s free market reform. Figure 1D indicates growth in relative income starting in the 2000s, but the period after 1970 saw a significant decline. If Chile is one of the healthiest economies in Latin America as the authors claim, why did its relative income fall during this period? In other words, when was Chile experiencing economic growth, and when was it in decline?
The part of the article that I dove deeper into was in 4.2 Developmental Laggards in particular the section about argentina. I grew up speaking Spanish and always had an interest in Spanish speaking countries. I was very surprised to see Argentina on the list of economies that had been declining because I always viewed it as one of the more vibrant South American countries. While the article did mention that Argentina was one of the richest countries in the world in the early twentieth century it has been in decline since the great depression. When it mentioned the issues the government had with inflation and stimulating the economy it reminded me of one of my other favorite subjects which is history. While doing a research paper on the end of WWII I read and researched the movement of top ranking Nazi members escaping to Argentina after the war to seek protection from their war crimes. While this might not be directly related to the decline in Argentina's economy it does provide evidence of corruption in their government. Government corruption is emphasized in the article as one of the factors that contributes to countries experiencing poverty traps.
At the end of the section it mentioned that the Argentinian economy has started to recover since defaulting on their debts in 2001. I was curious and spent a little time researching how Argentina's economy is doing now in 2024 and I discovered that Argentina is technically in a recession right now because of their recent quarterly performances. While this does prove that the economy is still experiencing issues, there's still hope of recovery. Argentina's agricultural and energy sectors are showing signs of recovery but Argentina is in need of an increase in new capital to help stimulate their economy and achieve their GDP growth hopes.
This was an interesting paper that attempted to explain the differences between fast-growing nations and countries that have lagged behind despite coming from similar starting points as their more successful counterparts.
Their choices of countries to analyze weren't surprising for the most part: the Asian Tigers, China, and India for the fast growers, and several sub-Saharan African countries for the laggards. However, a few of the picks were interesting. Botswana and Mauritius were intriguing among the fast growers - I'm sure many people, including myself, group them in with the poor countries they neighbor. However, I question how instructive Mauritius's case can be. It's an island paradise with a population smaller than Dallas, Texas - maybe there's something a country like Kenya could learn from it, but the selection still seems like a forced cherry-pick to add another African nation (though Comoros's inclusion does provide a nice juxtaposition). And, as John said, I was confused about Chile's inclusion among the laggards, while the paragraph describing its economic state was overwhelmingly positive.
I was surprised at how many of the factors contributing to fast (or slow) development were based on happenstance or factors outside of the control of the country in question. Commerce generated by proximity to economic leaders like Japan or the US was a hallmark throughout the paper. Conversely, colonial exploitation also greatly contributes to the laggards' poor economic state. Other fortune-based factors include the resources the country had access to, whether it be
natural resources or a massive labor force, like in China and India, that couldn't help but facilitate fast growth once it was harnessed. The importance of an export-based economy was a big emphasis, but not every country can be a net exporter - someone has to be on the other side to take the imports.
The keys for development outlined in this paper all seem very valid, but as I argued above, I question how easily they could be used as a blueprint for the laggards. It's easy to say that corruption is bad for a nation, but fixing it and the many other issues the laggards face is much easier said than done.
I found Brandon's previous comment on chaebols and corruption in South Korea very insightful. I recently read that Samsung alone makes up 22% of South Korea's GDP, which is a staggering statistic. The case of South Korea certainly raises questions about the relationship between growth and corruption, and while South Korea certainly ranks on the lower end of corruption globally, Samsung's high degree of political influence and high-profile instances of corruption in recent years call into question whether South Korea's long-term economic growth could be hampered if the chaebols' entanglement with political corruption is not resolved.
Botswana presents another interesting case regarding corruption. I was surprised that the paper did not mention Botswana's corruption levels being among the lowest in Africa as a key contributor to its economic growth. However, its reliance on diamond exports and the high prevalence of HIV jumped out as a massive red flag that the high GDP growth rate potentially did not tell the full story. Indeed, when looking up the Gini coefficient of Botswana, I found that it is 0.51, which is among the highest in the world. While this does not necessarily indicate that progress is not being made and that the poor are seeing none of the benefits of Botswana's economic growth, it makes me far more skeptical of GDP growth as a measure of progress.
The articles discovery that export based economies lead to growth and the possibility getting out of lagging development is helpful, but one may wonder if this discovery has come decades late. Over the last couple of decades developing countries have been able to build an absolute advantage when it comes to trade in the technological sector. While I am not convinced all hope is lost, I do think this once again points us back to the need of educational reform. Perhaps one advantage some less developed countries may have is being home to rare earth metals that have had skyrocketing demand.
I find it interesting that the article brought up a nations ability to use many different recourses to grow their economy. The article used the example of a few African nations which rely on agriculture whose economies are not growing like Singapore's or China's. Whereas Malaysia is a massive exporter of agriculture; however, it also exports many other sorts of goods. So clearly a nations diversity of goods matters. I wonder what the economic reasons for Saudi Arabia and the UAE, which rely heavily on oil production, are. Why are they able to become such wealthy nations. Whereas some nations in Africa, which heavily rely on certain resources, are not as successful as say a Saudi Arabia.
The article's focus on institutions as a key factor in development really spoke to me because of my experience growing up in Poland. I was born in 2003 and my parents lived in a post-soviet apartment block. I remember in kindergarten they would never let me go to the playground without their strict supervision because the neighborhood wasn't too safe. My friends and I often had to pool money to get a pack of 10 chewing gums for 25 cents because our parents wouldn't give us this much every day. A large pack of Lays chips was a real symbol of status.
Twenty years later, Poland is a member of the OECD and one of the best-performing European economies. From 1991 (one year after the transformation from a communist to a capitalist economy) to 2024, Polish GDP per capita PPP has grown at an average annual rate of 4%, which is faster than the Asian Tigers in the same period (South Korea 3.7%, Singapore - 3.1%). The neighborhood where I spent my early years is now colorful and vibrant and my parents managed to afford a mortgage.
However, this economic miracle wouldn't have happened if not for important institutional changes. First, the Polish government with IMF support adopted an ambitious and well-thought economic transformation plan, which introduced healthy foundations for a market-based economy and for building strong institutions including capital markets, healthcare, and social security system. the period of transformation is often referred to as "shock therapy" due to the rapid pace and big magnitude of changes.
Second, Poland joined the European Union in 2004, fulfilling many legal, economic, and institutional requirements, and opening itself for the European free trade and migration. Many studies showed how priceless this membership is for Polish economic development.
The institutional effect is particularly visible if compared to peer countries. Bulgaria, which joined the UE in 2007 but didn't introduce comparable economic reforms, started with a higher GDP per capita PPP but lagged behind with an average growth rate of 2.7%. Ukraine, which started with almost double the GDP per capita PPP, didn't introduce reforms and didn't join the EU, grew at the average rate of 1.6% from its lowest point in 1998.
Polish economy succeded in big part due to its effective institutions, allowing for technology adoption, innovation, and foreign investment. Just as the author of the article writes, Poland managed to avoid unnecessary protectionism,
government misallocation, corruption, and financial instability, which in turn led to higher economic growth.
The importance of these institutions is relevant also today as Poland successfully combats the so-called "middle-income trap" by attracting high-tech industries and their experts. The booming IT sector is transforming the economy due to correct incentives and a vast supply of specialists educated at Polish universities.
Getting your institutions right is difficult but in the long term, it may be the best investment in economic development.
This paper drew important comparisons between countries who are economically sufficient and those that are lagging behind or otherwise economically trapped through multiple cross-country comparisons. I thought the most interest part of this paper was that most of the countries who seemed to go on a journey towards economic success gradually began to increase their exports--China, for example-- or open their investments abroad. I think that this really goes to show how interdependent and globalized our world has become, and without the support and collaboration of foreign entities, these developing nations tend to be worse off. Along with this, I think it is interesting to consider these more global developments within the lens of climate change: in this collaborative world, how can we as a global community implement trade and economic regulations that benefit the earth and all of its peoples?
I would be interested in exploring how the different historical trends and eras these developing countries have faced has contributed to their stifled growth. I think that this economic and developmental divide between the global north and global south is important to be considered--especially the reasons why the global north tends to be more developed than the global south, and why the majority if not all trapped countries are located there. How exactly does an unstable history in some of these countries continue to negatively affect their growth while other countries with an similarly unstable history tend to do better? How does foreign and domestic influence play a role in a countries development, for better or for worse?
I found the paper very interesting. The distinction between export (particularly in finance and technology)-oriented growth and import-substitution industrialization (ISI) and the different outcomes between countries that began with very similar levels of resources, capital, and capabilities (around ~1960 or so) based on which strategy they used was fascinating to see unfold.
Though there is a lot of discussion of whether or not the paper is biased towards the market over state control, both strategies involved significant elements of state control/intervention. The key difference seems to be the level of private economic & business freedom allowed via government policy in many of these different countries. In the high growth "Asian Tiger" countries, governments played a strong interventionist role, providing mass subsidies, investing in human capital to provide companies a capable and talented workforce, and granting low-interest easily-obtainable credit to productive manufacturing and technological corporations. The free market alone didn't turn South Korea, China, and Taiwan into economic powerhouses. However, in intervening to support productive export-oriented sectors of the economy, each of those governments did ALLOW a significant degree of private freedom: to research, to invest, to innovate and develop new technology, and to trade, freely and fairly.
Conversely, in the ISI countries like Argentina, Brazil, Ghana, and Chile, the government nationalized all industries and promoted high tariffs. Without ANY free trade and no internal competition, many of these governments (most notably Ghana) inefficiently invested in their industrial capability (less advanced capital and infastructure=worse goods), resulting in more-delayed production of less-desirable goods, less exports (also in part due to high retaliatory tariffs most likely), high amounts of foreign debt and a stagnant, high-inflation economy (thanks to high minimum wage policy with an inefficient economy
My key takeaway is that in the story of these developing countries, it is important for the government to play a role in boosting productive and potentially booming sectors of the economy, by investing in them (both monetarily and through workforce development/human capital), but also to not limit their ability to compete, innovate, and bring revenue into the country (or eliminating private business entirely), which is more likely to devastate an economy. In short, government investment and support of human capital+private markets is important to successful development, as long as the government doesn't exert TOO MUCH control over those private businesses and their ability to compete and trade.
One thing I thought the article could've elaborated on more was the level of inequality in each of these countries. While many of these market-style/state capitalism reforms undoubtedly created high growth in many of these countries, it is left unsaid whether or not the economic growth was relatively evenly distributed across the population or concentrated in the hands of a few. Hearing stories of massive inequality and rigid socioeconomic-hierarchical systems from places like South Korea and Taiwan (successes in the paper) suggest that even with massive economic growth, quality of life in these places might not be as great as the paper is touting (especially given the recent political unrest in South Korea over these exact issues), even if by objective metrics, they are "success stories." I would also be interested in hearing about any policies these governments are employing to try and counter mass inequality.
I forgot to add this but I think it's extremely important to mention; it seems many of the countries that were extremely successful in implementing export-oriented growth already had a high-degree of human capital investment even if their economies were struggling. Taiwan already had high-quality healthcare, education, and infrastructure, and so did China and South Korea.
Other countries, particularly the ones discussed in Africa, due to factors like colonialism and foreign "aid" by international agencies like the IMF and World Bank (predatorily high-interest rates on their loans... which led to the gutting of attempted human capital programs on to pay off debt before a healthy, talented workforce had even been created), did not have well-established human capital systems in place that could take advantage of industrialization nearly as well as the "Asian Tiger" nations.
Economic development was and is much more difficult in countries without existing institutions that promote a talented, healthy workforce than those that have them, regardless of the economic development strategy they used.
When reading Wang’s “Institutional Barriers and World Income Disparities” there were a lot of points I found to be interesting. Still, a few I’m not so sure I agree with (or at the very least I have a different opinion of). While they do a relatively good job of highlighting case studies of impressive and stunted economic growth—the study seems quite narrow. I don’t know if that’s a fair assessment, but when papers attempt to provide evaluations and solutions for the future, being limited in the initial research always seems like a worrisome point.
That aside, the largest thing that caught my attention was the lagging countries and the reasons for their “institutional barriers”. While I agree that factors like corruption and lack of initial infrastructure are a large part of the reason certain countries have struggled to grow, those are not things that most of those countries have developed in isolation. The lack of discussion recognizing the history of colonialism in those areas and analyzing the consistent trend of impact it has had since seems like a misstep (take the history of development of Costa Rica and compare it to that of Nicaragua, for example) I understand the need to wrap a conclusion in a clean bow of “simple hindered development” but at the end of the day it’s a complex issue and failing to recognize those adjacent historical and cultural aspects seem a little misleading.
The paper was interesting as it went into some detail about individual economies and some of the reasons why they grew or lagged behind. I would have liked to see more discussion on the institutional barriers that existed in each country and what that particular country did to remove that barrier or what effect it had on growth. I think that there is not enough emphasis on the effect of institutional barriers on economic development. If a county has a weak legal system, then it will make it harder for companies and individuals to invest in technology that will produce more goods a create jobs as the certainty of the return is much less. Earlier this month Mexico was in the process of reforming its legal system and billions of dollars in FDI were withheld because companies were unsure of the effect. I wish the paper went into more detail about the specific effects of certain policies.
The discussion about Argentina is particularly interesting because it is the modern poster child for a mostly westernized economy doing poorly. They are known for high inflation and a particularly bad debt crisis which caused them to default multiple times. There is a fascinating book about it called Default which covers the court cases which attempted to recover payments from the Argentinian government. In short, the legal battle lasted more than ten years and resulted in a federal judge causing Argentina to default a second time.
I thought that this article was successful in discussing why certain countries have better development in comparison to others. A lot of people in today’s society love to discuss how it’s because they have no access to food, healthcare, and education. Even though this is true, the authors point out that it is mainly because they have a weak “institutional barrier.” They provide this emphasis because having a strong base with the central government, as well as a strong legal system will help shape the future for a country. When this happens, corruption goes down, investment in technologies could finally get promoted, and economic growth can finally occur.
What I find really interesting about this article is when the authors talk about Comorus and its economic development. When they were colonized by France in 1841, they became a plantation based economy until they claimed independence in 1975. Due to their economy and how they were founded, researchers found the education level to be low. Additionally, the article states that the government deficit is low due to the lack of stable tax revenues.
As a result of how Comorus was founded, and how late they claimed independence, it resulted in the country having a poor economy. We see examples of countries like Comorus all over the world today, leading people to question why their economy is poor without ever looking at their history, bringing a different perspective on developing counties.
I found this article very interesting and it was a really interesting application of the more theoretical reading from last class. It does make me want to learn more about other countries through this framework, especially countries that are close to being on a similar trajectory to the four asian tigers, but may need a bit of assistance, or even countries that are starting on that trajectory but are not quite as far along in their growth yet.
It is also interesting to look at the impact of European colonialism on countries' abilities to develop. With the exception of Greece, all of the countries in the "development laggards" category were colonized by a major European power. I took a class last year that focused on the developmental struggles Latin America faced as a result of having their natural commodities trade being dominated by an outside power. To use Brazil as an example, the rubber trade has not only decimated the amazon rainforest, but it is also a particularly inefficient one that benefits outside manufacturers much more than the people of Brazil itself. For this reason, Brazil is not able to maximize revenue of its natural resources, which can result in a lack of economic development. This and many other cases of unequal ecological exchange are often a byproduct of colonialism.
This past semester, I was lucky enough to take Modern Latin American History. One of the papers we read described the "Open Veins of Latin America" - these "open veins" seem to be on full display in all 'lagging' countries, regardless of whether Simon Bolivar gets featured during Independence Day celebrations.
"Open Veins" argues that industrial powers, namely the United States and China, perpetuate expoert-based mercantilist economic systems. That is, the US and China push (or at least do not hold their own firms accountable for) policies that hinder Latin American manufacturing and infrastructure buildout. This can look like shipping raw materials abroad to be processed, reselling manufactured goods produced at an extreme markup, or cementing monopoly over certain industries/shipping networks.
The US has some experience with "open veins." When the British placed a tax on American tea in 1776, the Americans demonstrated their "freedom" at the Boston Tea Party.
The Argentine and Chilean schools of economic thought dreamt up something a little less ... chilly. Economists Raul Prebisch and his team advocated for and implemented ISI, or import-substitution-industrialization. Prebisch believed that if the Argentine government placed a prohibitively high tariff on foreign goods, fledging domestic industries would become competitive. And they did! - until the '70s, when Argentina's borrowing to cover Peronist budget deficits birthed the conditions that created today's Argentine debt trap.
This story always makes me wonder what the process to "undig" a country out of this kind of economic hole looks like. How do you incentivize policymakers and your peers to act?
It was interesting to notice that many of the developing countries had a similar problem: being too dependent on an agricultural product which led to crises because the products prices went down, slowing down the growth of their economies. For example, in Cote D’Ivoire they were too dependent on cacao and there was no alternative use of land, so when trade decreased because cacao prices went down, their economy struggled heavily. A lot of government corruption is also present in developing countries and I’m curious to see the best ways to handle those major issues and ensure that the money doesn’t go into the hands of corrupt government leaders. On the other hand, it was interesting to see that many of the fast growing economies occurred due to the switch to export oriented industries and trade with other countries. I wonder if developing countries have the opportunity to do that and if that would help them grow their economies.
I thought the paper was interesting, but I am always a little skeptical when there is cross-country analysis which the author also acknowledges.
I thought it was interesting how the paper concluded a very pro-market and pro-globalization. This seems to be pushing more of a certain set of ideas rather than being honest. Because I think there are examples where too many pro-market and pro-financial institutions do not help the countries and even if there is growth, a question still remains about the quality of people's lives.
I would say Ivory Coast is underdeveloped exactly because they are too pro-market and too little government intervention has happened, which allows for the land to be exploited while companies rake in billions in revenue. One thing I found out recently is that the Federation of Commerce of Cacao which is in London dictates who the coca can be sold to. Without exploiting the Ivory Coast, the companies could not bring so much profit and prosperity to countries like Belgium or the U.S. (through companies like Nestle, Ferro, etc.) China and South Korea, without very strong government intervention which is not exactly pro-market allowed them to prosper.
Of course there has to be a balance between government intervention and pro-market policies. It does seem to suggest that tapping into global trade is one of the best ways to boost the economy, which is very cool. Still, also when we consider the environment and the vulnerability of the system to things like a global pandemic we should think of ways to protect the intricate system.
Latin America is also particularly interesting because of the U.S. meddling, especially with the support or instigation of coups, so it would be hard to decouple the economic development progress from the political interventions.
Posted by: Ignas | 09/13/2024 at 09:32 PM
I am a bit confused about how to interpret the results of tables 2 and 3, particularly the Growth Accounting- Institutional barriers column. I don't quite understand the mechanism that would connect barrier to positive (or negative) economic growth. It seems that barriers are helpful in the fast-growing countries, responsible for about half of growth, while in laggard countries barriers are responsible for lots of economic growth, with failure in the other categories holding them back in other ways. I am not sure how to interpret these results.
It makes some sense that import substitution is less effective than export-led substitution. The potential market of the entire world is much larger than any domestic market. It is also difficult to stop protectionist policies once they start; if a domestic heavy industry does take off and employs a good share of a countries population, the company owners and workers will not want a government to remove those protections. Protection producers, who only make up that share of the population while raising prices everyone else who consumes imports.
It is hard to make statistical conclusions with only 20 case studies. Lacking statistical evidence, it makes sense for a development plan to "copy greatness", and emulate strategies that have resulted in success.
Posted by: _jteer | 09/17/2024 at 03:09 PM
This paper illustrated the tragic differences between countries that are lagging versus high growth countries. The comparisons of countries and how those lagging was partially due to oppressive governmental power or a previous war drew me to the idea of colonization. In my literature class last semester, we read a piece titled “How Europe Underdeveloped Africa”, by Walter Rodney. Essentially, Rodney argued that underdevelopment or the lagging of countries is a result of capitalist, imperialist, and colonial exploitation. While this paper emphasized that many of the same countries started on the same economic fronts, the systemic inequalities and discrepancies were always meant to under-develop the lagging countries. My argument is that it is not just lack of infrastructure and inadequate education and healthcare policies that drive the decline in economic growth. Rather, it is a combination of infrastructure and the high growth countries’ previous colonial dominance that has caused countries to remain far behind. For example, in many African countries, African wealth created by African labor and African resources were grabbed and sold by capitalist European countries.
Another point I want to explore is if underdeveloped countries stopped their primary exports and halted their thin market dominance to high growth economies, would big superpowers or emerging countries have the same amount of economic dominance? My assumption is that they have enough money to take over these smaller industries, but the geographies of these smaller countries create natural resources that may not be found in high growth countries. I found the two case studies of both Botswana and Mauritius especially interesting, as they go against the social norm of how countries in this region are perceived. Although, it is disappointing to read that Botswana could be ahead of its current state if it had access to proper AIDS medication. This example emphasizes the basis of living through access to health and education programs to allow economic growth from generation to generation. Although, it is disappointing to read that Botswana could be ahead of its current state if it had access to proper AIDS medication. This example emphasizes the basis of living and investing in health and education programs to allow economic growth from generation to generation.
Posted by: Jaeya | 09/17/2024 at 06:58 PM
I thought this paper was an interesting comparison into what makes the difference for countries with fast growing economies versus those that lag behind. However, I think the final conclusions lacked a little bit of depth. Specifically table 4 and its summary of Development-retarding factors. Financial Instability and corrupption just seem like obvious factors that would slow down developent in a country. I felt that the development-enhancing factors such as the expport-led open policy and high-tech promotion provide more valuable conclusions. These conclusions seem more likely to influence policy. Overall though, I feel the paper lacks a bit of specificity in its conclsuions, and the case studies do not fully align with.
Posted by: Colin Ryan | 09/17/2024 at 07:56 PM
Some students have already begun to highlight this, but it is important to understand that lag-behind and trapped countries often have had a history of oppression, recent political transition, or recently gained independence.
I am interested that certain countries have similar or even better development than some of the fast-growing economies, but how they develop differs resulting in “less-desirable aggregate outcomes.” It makes me question why they don’t look to successful countries or “economic miracle” countries and implement their system. The paper distinguishes this is because of institutional barriers. Economic miracle countries, like Japan, had low corruption, was fairly peaceful, and went through economic, social, and political reforms. There are clearly recipes that promote growth, and not all countries have access to it due to these barriers. It sounds like it is difficult to overcome them without intervention. There are already institutions in place to help like the World Bank and IMF, but they are now being relied upon to fuel the economy which is not sustainable. That brings up a question, do we have a responsibility to provide support? Is more support needed or should there be a different approach?
My overall takeaway is lag-behind countries are trapped by inflation, dependency, national debt, location, traditional economy (agricultural), corruption, low FDI, etc. The paper does a good job of summarizing it up in the table on page 276. Fast-growing economies are open policy with export-led development strategies, set up the environment to promote FDI, made reforms to labor and financial markets, and shifted to capital-intensive and high-tech activities. All which make the economy more productive.
The reason the United States has been able to become so powerful is because it is bordered by two relatively weak countries and is separated from the rest of the world by massive bodies of water, alleviating security concerns and external pressures. Obviously, it’s not that simple, but it doesn’t have the same issues as everyone else, so it is almost unfair to compare other countries to it.
Posted by: WD | 09/17/2024 at 09:55 PM
Like last week’s paper, I think this one too does a decent job explaining an overview of the problem at hand: Severe institutional barriers hinder the development of countries. However, there are multiple considerations that are neglected in this paper as it concludes that the development of “correct” institutions for capital markets, international trade, and industrialization can solve the issue of poor economic growth.
One such neglected consideration is how culture influences bilateral trust among countries. This is an important question to answer because cultural similarities can greatly affect international trade and investments. In a paper by Guiso et al., the authors discuss how the fraction of years a country was at war significantly reduces how much another country trusts it. Similarly, other cultural proxies in the paper (e.g. common language, distance, common border, religious similarity, somatic distance, and genetic distance) also have a relationship with trust. In the paper we are looking at this can be seen with the “Asian Tigers”; all in the same region of Asia with very similar cultures. On the other hand, trapped countries and lag-behind countries are also those with similar cultural and geographic backgrounds, additionally all seem to have some sort of a war-like history in recent years. So, it is not shocking to believe that the developed world does not want to trade as much with these or even invest in them. Additionally, reverse causality is also very plausible, wherein because other countries don’t want to engage on high economic levels with these countries due to the lack of trust, they continue to economically deteriorate. Therefore, increasing international trade is not crucial for their development, rather forming trustable institutions which focus on eliminating corruption as well as promoting local businesses etc should be Step 1.
Posted by: Archita | 09/18/2024 at 04:36 PM
"Institutional Barriers and World Income Disparities" clearly identifies case studies of country-level economic growth and stagnation since 1960 at an international level, but the article seems to lack nuance when considering reasons for stagnation, in particular. Institutional barriers, such as a lack of infrastructure, corruption, healthcare, and education certainly are correlated with countries who have struggled to develop or grow their economies. However, institutional barriers seem like a confounding or mitigating variable in this analysis. While the aforementioned components of institutional barriers are death knells for development, these conditions did not form in a vacuum. The lack of discussion about colonialism and its use to extract resources, both human and natural, from now postcolonial states is concerning. It is certainly true that such countries face serious barriers to development, but these generally emerged from a history of subjugation and these countries' inability to self-determine national economic destiny until the 1960s and 1970s (and according to some, still cannot).
However, the pro-trade and institutional reformist reasoning for understanding vast economic growth across top performers is a convincing one. India's growth of R&D investment and past liberalization of international trade shows how the adaptation of a once agrarian nation to a modern, industrial one is a lodestar for development. Cases like Mauritius are heartening, but stand out as unique due to the ability of the country to open up ecotourism. Frankly, many developing nations do not boast the same natural resources and beauty to attract international travellers at the same level. While the various cases given in the article are interesting and do promote the argument for globalization and liberalized trade worldwide, the cherry-picking of examples does lead me to doubt the generalizability of the authors' findings. It is true that the "establishment of correct institutions" should lead countries to higher achievement in development, this oversimplification shrugs off nuance and does not offer policy implementation perspectives.
Posted by: Porter | 09/18/2024 at 04:51 PM
Wang’s “Institutional Barriers and World Income Disparities” discusses a comparative case study of several rapidly developing economies and other economies which have economically stagnated, whom he refers to as “development laggards.” Wang’s discussion emphasizes the inability to hurdle crucial institutional barriers, such as government misallocation, corruption, and financial instability, as the primary contributing factor to the widening of income disparities between fast-growing economies and development laggards like Kenya and Brazil. Such institutional barriers hinder the process of structural transformation and economic development, leaving countries without a “sustainable growth engine” (Wang 259), despite many of them being in a better state five decades ago.
In addition to institutional barriers, Wang highlights relative total factor productivities (TFPs) as another key factor in fast-growing countries’ ability to grow faster than the US and for trapped economies to grow slower than the US. To this point, I found it interesting that almost all of the development laggards have relative TFPs below 1.
All of the fast-growing economies that were studied have adopted an open policy with an export-led development strategy. For instance, Hong Kong transformed into a service-provider economy, shifting from manufacturing to trading. It consequently grew to become a major financial center in the 1990s. Singapore similarly became a world technology leader by the late 1990s as a result of pursuing a high-wage policy during 1979-84 to shift production away from labor-intensive to both capital-intensive and high-tech activities. Taiwan’s relative income rose steadily over the entire sample period, and its economy became industrialized and technology-oriented, much like Singapore’s economy. Specifically, major construction projects were implemented in Taiwan's economy, which helped it transform into a growing, export-led economy. Malaysia is yet another nation whose economy has grown tremendously, as it became the largest Islamic banking center in the world (Wang 268). Malaysia overcame institutional barriers by transforming its predominantly mining and agricultural-based economy to a more multi-sector industrial economy. Implementing the New Economic Policy in 1971 was a major contributor to Malaysia’s urbanization and rapid economic growth. Finally, taking advantage of high animal spirits and a high willingness to take risks helped contribute to Malaysia’s ongoing economic growth.
Conversely, development laggards such as Kenya have experienced a widening of income disparity between their economy and that of the US over the entire sample period. Kenya specifically experienced rapid growth following its emergence as an independent nation in 1963; however, its GDP is highly reliant on coffee production and oil imports, which are both sensitive to supply crises. Brazil is famous for its corruption, as its corruption alone costs Brazil an estimated $41 billion a year. Due to this, Brazil grew to the point of catching up with the US before the mid-1970s and has stagnated since then.
Wang’s piece threads a revealing theme: those dependent on imports are subject to the success of other economies and are at a greater risk of stagnating or becoming classified as a development laggard nation, while those with strong export systems tend to be more resistant to economic stagnation. All fast-growing economies have undergone serious reforms in both labor and financial markets, such as establishing correct institutions and individual incentives to promote the health of and access to capital markets, international trade, and industrialization (Wang 276). They have also implemented various effective industry policies that complement their competitive advantages. On the other hand, those countries that have fallen into poverty traps have adopted import substitution policies that attract foreign investment through protected markets. Unnecessary protectionism, government misallocation, corruption, and a lack of export diversification and production sophistication all contribute to the stagnation of various economies. The development laggards are not only stagnating in their economic growth due to these causes, but they struggle to catch up with rapidly developing countries due to these factors acting as barriers to capital markets, trade, and industrialization.
Posted by: Sofia Iuteri | 09/18/2024 at 05:00 PM
This paper helps reinforce but also expand on much what we think about how strong economic countries have developed, as well as how the lagging countries have stayed behind. Institutional barriers that continue to trap countries into poverty seem difficult to overcome, as foreign investment is essential yet will avoid poverty-trapped countries.
What intrigued me most about this paper were the mentions of South Korea and how the country focused on export oriented growth, and thus became one of the Tigers of Asian Economic Development. From the 60s throughout the 80s, there was a clear shift in Korean economic goals, moving from import substitution to export oriented manufacturing, and high investments into technology (regardless of the scare of overinvestment in the 80s).
Although the article mentions the chaebols (conglomerates) briefly, I wish it dove deeper into the sheer influence that these chaebols had on the country's economy, because chaebols and their companies make up most of Korea's GDP. Despite their grand economic contributions, chaebols are constantly called out in Korean media on their corruption in politics. For example, former Korean President Park Geun-Hye was removed from office in 2017 for taking bribes from chaebol families and their companies. BUT, this corruption has a history in Korea. After Chun Doo-Hwan's military uprising to power in 1980, students protested militia rule, and the military proceeded to kill at least 2,000 citizens within a couple of weeks.
To clarify, I'm talking about this because I am interested in how Korea has continued to develop so rapidly, despite all of this corruption. The article talks about how the lagging countries have issues with corruption and war and other institutional barriers, and thus other countries are hesitant to invest. I'm interested in the miracle of the Korean economy: how foreign economies overcame what they thought the countries corruption? the influence of the chaebols? If the Carter administration's involvement in suppressing the 1980's Gwangju protests has anything to do with this? I wish the article elaborated on these issues more, but of course, there are many articles about these subjects.
Posted by: Brandon Lee | 09/18/2024 at 05:10 PM
I am confused about the economic development of Chile. In the very first line of the section, the paper states that Chile’s relative income fell during 1970-2001. However, the second paragraph in that section talks about very positive outcomes that resulted from the Chicago boys and Chile’s free market reform. Figure 1D indicates growth in relative income starting in the 2000s, but the period after 1970 saw a significant decline. If Chile is one of the healthiest economies in Latin America as the authors claim, why did its relative income fall during this period? In other words, when was Chile experiencing economic growth, and when was it in decline?
Posted by: John Santowski | 09/18/2024 at 05:28 PM
The part of the article that I dove deeper into was in 4.2 Developmental Laggards in particular the section about argentina. I grew up speaking Spanish and always had an interest in Spanish speaking countries. I was very surprised to see Argentina on the list of economies that had been declining because I always viewed it as one of the more vibrant South American countries. While the article did mention that Argentina was one of the richest countries in the world in the early twentieth century it has been in decline since the great depression. When it mentioned the issues the government had with inflation and stimulating the economy it reminded me of one of my other favorite subjects which is history. While doing a research paper on the end of WWII I read and researched the movement of top ranking Nazi members escaping to Argentina after the war to seek protection from their war crimes. While this might not be directly related to the decline in Argentina's economy it does provide evidence of corruption in their government. Government corruption is emphasized in the article as one of the factors that contributes to countries experiencing poverty traps.
At the end of the section it mentioned that the Argentinian economy has started to recover since defaulting on their debts in 2001. I was curious and spent a little time researching how Argentina's economy is doing now in 2024 and I discovered that Argentina is technically in a recession right now because of their recent quarterly performances. While this does prove that the economy is still experiencing issues, there's still hope of recovery. Argentina's agricultural and energy sectors are showing signs of recovery but Argentina is in need of an increase in new capital to help stimulate their economy and achieve their GDP growth hopes.
Article I used
https://finance.yahoo.com/news/argentina-economy-forecast-extend-recession-181328705.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAKobpcH0uILPZMTv7R-tKrSGjVfGMXFiU3h1qCxJ12aVgYYUS8o6e35uyKV1QB1NEDPKgJA_a-oxTSOLOR4WyCzsFuQ3bVhkXXnhLLSfADg0_aW59J6ufANq7dPpWypQpPfm4FigVi3XwBWKXy1ZUIM8B84cMx0jQ4XXHGekMgJ_
Posted by: Harry G | 09/18/2024 at 06:40 PM
This was an interesting paper that attempted to explain the differences between fast-growing nations and countries that have lagged behind despite coming from similar starting points as their more successful counterparts.
Their choices of countries to analyze weren't surprising for the most part: the Asian Tigers, China, and India for the fast growers, and several sub-Saharan African countries for the laggards. However, a few of the picks were interesting. Botswana and Mauritius were intriguing among the fast growers - I'm sure many people, including myself, group them in with the poor countries they neighbor. However, I question how instructive Mauritius's case can be. It's an island paradise with a population smaller than Dallas, Texas - maybe there's something a country like Kenya could learn from it, but the selection still seems like a forced cherry-pick to add another African nation (though Comoros's inclusion does provide a nice juxtaposition). And, as John said, I was confused about Chile's inclusion among the laggards, while the paragraph describing its economic state was overwhelmingly positive.
I was surprised at how many of the factors contributing to fast (or slow) development were based on happenstance or factors outside of the control of the country in question. Commerce generated by proximity to economic leaders like Japan or the US was a hallmark throughout the paper. Conversely, colonial exploitation also greatly contributes to the laggards' poor economic state. Other fortune-based factors include the resources the country had access to, whether it be
natural resources or a massive labor force, like in China and India, that couldn't help but facilitate fast growth once it was harnessed. The importance of an export-based economy was a big emphasis, but not every country can be a net exporter - someone has to be on the other side to take the imports.
The keys for development outlined in this paper all seem very valid, but as I argued above, I question how easily they could be used as a blueprint for the laggards. It's easy to say that corruption is bad for a nation, but fixing it and the many other issues the laggards face is much easier said than done.
Posted by: Alex Malone | 09/18/2024 at 07:26 PM
I found Brandon's previous comment on chaebols and corruption in South Korea very insightful. I recently read that Samsung alone makes up 22% of South Korea's GDP, which is a staggering statistic. The case of South Korea certainly raises questions about the relationship between growth and corruption, and while South Korea certainly ranks on the lower end of corruption globally, Samsung's high degree of political influence and high-profile instances of corruption in recent years call into question whether South Korea's long-term economic growth could be hampered if the chaebols' entanglement with political corruption is not resolved.
Botswana presents another interesting case regarding corruption. I was surprised that the paper did not mention Botswana's corruption levels being among the lowest in Africa as a key contributor to its economic growth. However, its reliance on diamond exports and the high prevalence of HIV jumped out as a massive red flag that the high GDP growth rate potentially did not tell the full story. Indeed, when looking up the Gini coefficient of Botswana, I found that it is 0.51, which is among the highest in the world. While this does not necessarily indicate that progress is not being made and that the poor are seeing none of the benefits of Botswana's economic growth, it makes me far more skeptical of GDP growth as a measure of progress.
Posted by: Evan Daigle | 09/18/2024 at 07:43 PM
The articles discovery that export based economies lead to growth and the possibility getting out of lagging development is helpful, but one may wonder if this discovery has come decades late. Over the last couple of decades developing countries have been able to build an absolute advantage when it comes to trade in the technological sector. While I am not convinced all hope is lost, I do think this once again points us back to the need of educational reform. Perhaps one advantage some less developed countries may have is being home to rare earth metals that have had skyrocketing demand.
Posted by: Ben_Sundell | 09/18/2024 at 07:48 PM
I find it interesting that the article brought up a nations ability to use many different recourses to grow their economy. The article used the example of a few African nations which rely on agriculture whose economies are not growing like Singapore's or China's. Whereas Malaysia is a massive exporter of agriculture; however, it also exports many other sorts of goods. So clearly a nations diversity of goods matters. I wonder what the economic reasons for Saudi Arabia and the UAE, which rely heavily on oil production, are. Why are they able to become such wealthy nations. Whereas some nations in Africa, which heavily rely on certain resources, are not as successful as say a Saudi Arabia.
Posted by: Henry | 09/18/2024 at 07:54 PM
The article's focus on institutions as a key factor in development really spoke to me because of my experience growing up in Poland. I was born in 2003 and my parents lived in a post-soviet apartment block. I remember in kindergarten they would never let me go to the playground without their strict supervision because the neighborhood wasn't too safe. My friends and I often had to pool money to get a pack of 10 chewing gums for 25 cents because our parents wouldn't give us this much every day. A large pack of Lays chips was a real symbol of status.
Twenty years later, Poland is a member of the OECD and one of the best-performing European economies. From 1991 (one year after the transformation from a communist to a capitalist economy) to 2024, Polish GDP per capita PPP has grown at an average annual rate of 4%, which is faster than the Asian Tigers in the same period (South Korea 3.7%, Singapore - 3.1%). The neighborhood where I spent my early years is now colorful and vibrant and my parents managed to afford a mortgage.
However, this economic miracle wouldn't have happened if not for important institutional changes. First, the Polish government with IMF support adopted an ambitious and well-thought economic transformation plan, which introduced healthy foundations for a market-based economy and for building strong institutions including capital markets, healthcare, and social security system. the period of transformation is often referred to as "shock therapy" due to the rapid pace and big magnitude of changes.
Second, Poland joined the European Union in 2004, fulfilling many legal, economic, and institutional requirements, and opening itself for the European free trade and migration. Many studies showed how priceless this membership is for Polish economic development.
The institutional effect is particularly visible if compared to peer countries. Bulgaria, which joined the UE in 2007 but didn't introduce comparable economic reforms, started with a higher GDP per capita PPP but lagged behind with an average growth rate of 2.7%. Ukraine, which started with almost double the GDP per capita PPP, didn't introduce reforms and didn't join the EU, grew at the average rate of 1.6% from its lowest point in 1998.
Polish economy succeded in big part due to its effective institutions, allowing for technology adoption, innovation, and foreign investment. Just as the author of the article writes, Poland managed to avoid unnecessary protectionism,
government misallocation, corruption, and financial instability, which in turn led to higher economic growth.
The importance of these institutions is relevant also today as Poland successfully combats the so-called "middle-income trap" by attracting high-tech industries and their experts. The booming IT sector is transforming the economy due to correct incentives and a vast supply of specialists educated at Polish universities.
Getting your institutions right is difficult but in the long term, it may be the best investment in economic development.
Posted by: Eryk Chojnacki | 09/18/2024 at 07:55 PM
This paper drew important comparisons between countries who are economically sufficient and those that are lagging behind or otherwise economically trapped through multiple cross-country comparisons. I thought the most interest part of this paper was that most of the countries who seemed to go on a journey towards economic success gradually began to increase their exports--China, for example-- or open their investments abroad. I think that this really goes to show how interdependent and globalized our world has become, and without the support and collaboration of foreign entities, these developing nations tend to be worse off. Along with this, I think it is interesting to consider these more global developments within the lens of climate change: in this collaborative world, how can we as a global community implement trade and economic regulations that benefit the earth and all of its peoples?
I would be interested in exploring how the different historical trends and eras these developing countries have faced has contributed to their stifled growth. I think that this economic and developmental divide between the global north and global south is important to be considered--especially the reasons why the global north tends to be more developed than the global south, and why the majority if not all trapped countries are located there. How exactly does an unstable history in some of these countries continue to negatively affect their growth while other countries with an similarly unstable history tend to do better? How does foreign and domestic influence play a role in a countries development, for better or for worse?
Posted by: Katherine | 09/18/2024 at 07:56 PM
I found the paper very interesting. The distinction between export (particularly in finance and technology)-oriented growth and import-substitution industrialization (ISI) and the different outcomes between countries that began with very similar levels of resources, capital, and capabilities (around ~1960 or so) based on which strategy they used was fascinating to see unfold.
Though there is a lot of discussion of whether or not the paper is biased towards the market over state control, both strategies involved significant elements of state control/intervention. The key difference seems to be the level of private economic & business freedom allowed via government policy in many of these different countries. In the high growth "Asian Tiger" countries, governments played a strong interventionist role, providing mass subsidies, investing in human capital to provide companies a capable and talented workforce, and granting low-interest easily-obtainable credit to productive manufacturing and technological corporations. The free market alone didn't turn South Korea, China, and Taiwan into economic powerhouses. However, in intervening to support productive export-oriented sectors of the economy, each of those governments did ALLOW a significant degree of private freedom: to research, to invest, to innovate and develop new technology, and to trade, freely and fairly.
Conversely, in the ISI countries like Argentina, Brazil, Ghana, and Chile, the government nationalized all industries and promoted high tariffs. Without ANY free trade and no internal competition, many of these governments (most notably Ghana) inefficiently invested in their industrial capability (less advanced capital and infastructure=worse goods), resulting in more-delayed production of less-desirable goods, less exports (also in part due to high retaliatory tariffs most likely), high amounts of foreign debt and a stagnant, high-inflation economy (thanks to high minimum wage policy with an inefficient economy
My key takeaway is that in the story of these developing countries, it is important for the government to play a role in boosting productive and potentially booming sectors of the economy, by investing in them (both monetarily and through workforce development/human capital), but also to not limit their ability to compete, innovate, and bring revenue into the country (or eliminating private business entirely), which is more likely to devastate an economy. In short, government investment and support of human capital+private markets is important to successful development, as long as the government doesn't exert TOO MUCH control over those private businesses and their ability to compete and trade.
One thing I thought the article could've elaborated on more was the level of inequality in each of these countries. While many of these market-style/state capitalism reforms undoubtedly created high growth in many of these countries, it is left unsaid whether or not the economic growth was relatively evenly distributed across the population or concentrated in the hands of a few. Hearing stories of massive inequality and rigid socioeconomic-hierarchical systems from places like South Korea and Taiwan (successes in the paper) suggest that even with massive economic growth, quality of life in these places might not be as great as the paper is touting (especially given the recent political unrest in South Korea over these exact issues), even if by objective metrics, they are "success stories." I would also be interested in hearing about any policies these governments are employing to try and counter mass inequality.
Posted by: Ethan Babb | 09/18/2024 at 08:03 PM
I forgot to add this but I think it's extremely important to mention; it seems many of the countries that were extremely successful in implementing export-oriented growth already had a high-degree of human capital investment even if their economies were struggling. Taiwan already had high-quality healthcare, education, and infrastructure, and so did China and South Korea.
Other countries, particularly the ones discussed in Africa, due to factors like colonialism and foreign "aid" by international agencies like the IMF and World Bank (predatorily high-interest rates on their loans... which led to the gutting of attempted human capital programs on to pay off debt before a healthy, talented workforce had even been created), did not have well-established human capital systems in place that could take advantage of industrialization nearly as well as the "Asian Tiger" nations.
Economic development was and is much more difficult in countries without existing institutions that promote a talented, healthy workforce than those that have them, regardless of the economic development strategy they used.
Posted by: Ethan Babb | 09/18/2024 at 08:15 PM
When reading Wang’s “Institutional Barriers and World Income Disparities” there were a lot of points I found to be interesting. Still, a few I’m not so sure I agree with (or at the very least I have a different opinion of). While they do a relatively good job of highlighting case studies of impressive and stunted economic growth—the study seems quite narrow. I don’t know if that’s a fair assessment, but when papers attempt to provide evaluations and solutions for the future, being limited in the initial research always seems like a worrisome point.
That aside, the largest thing that caught my attention was the lagging countries and the reasons for their “institutional barriers”. While I agree that factors like corruption and lack of initial infrastructure are a large part of the reason certain countries have struggled to grow, those are not things that most of those countries have developed in isolation. The lack of discussion recognizing the history of colonialism in those areas and analyzing the consistent trend of impact it has had since seems like a misstep (take the history of development of Costa Rica and compare it to that of Nicaragua, for example) I understand the need to wrap a conclusion in a clean bow of “simple hindered development” but at the end of the day it’s a complex issue and failing to recognize those adjacent historical and cultural aspects seem a little misleading.
Posted by: Kylie Sheridan | 09/18/2024 at 08:43 PM
The paper was interesting as it went into some detail about individual economies and some of the reasons why they grew or lagged behind. I would have liked to see more discussion on the institutional barriers that existed in each country and what that particular country did to remove that barrier or what effect it had on growth. I think that there is not enough emphasis on the effect of institutional barriers on economic development. If a county has a weak legal system, then it will make it harder for companies and individuals to invest in technology that will produce more goods a create jobs as the certainty of the return is much less. Earlier this month Mexico was in the process of reforming its legal system and billions of dollars in FDI were withheld because companies were unsure of the effect. I wish the paper went into more detail about the specific effects of certain policies.
The discussion about Argentina is particularly interesting because it is the modern poster child for a mostly westernized economy doing poorly. They are known for high inflation and a particularly bad debt crisis which caused them to default multiple times. There is a fascinating book about it called Default which covers the court cases which attempted to recover payments from the Argentinian government. In short, the legal battle lasted more than ten years and resulted in a federal judge causing Argentina to default a second time.
Posted by: Ryman Smith | 09/18/2024 at 08:45 PM
I thought that this article was successful in discussing why certain countries have better development in comparison to others. A lot of people in today’s society love to discuss how it’s because they have no access to food, healthcare, and education. Even though this is true, the authors point out that it is mainly because they have a weak “institutional barrier.” They provide this emphasis because having a strong base with the central government, as well as a strong legal system will help shape the future for a country. When this happens, corruption goes down, investment in technologies could finally get promoted, and economic growth can finally occur.
What I find really interesting about this article is when the authors talk about Comorus and its economic development. When they were colonized by France in 1841, they became a plantation based economy until they claimed independence in 1975. Due to their economy and how they were founded, researchers found the education level to be low. Additionally, the article states that the government deficit is low due to the lack of stable tax revenues.
As a result of how Comorus was founded, and how late they claimed independence, it resulted in the country having a poor economy. We see examples of countries like Comorus all over the world today, leading people to question why their economy is poor without ever looking at their history, bringing a different perspective on developing counties.
Posted by: afanney | 09/18/2024 at 08:47 PM
I found this article very interesting and it was a really interesting application of the more theoretical reading from last class. It does make me want to learn more about other countries through this framework, especially countries that are close to being on a similar trajectory to the four asian tigers, but may need a bit of assistance, or even countries that are starting on that trajectory but are not quite as far along in their growth yet.
It is also interesting to look at the impact of European colonialism on countries' abilities to develop. With the exception of Greece, all of the countries in the "development laggards" category were colonized by a major European power. I took a class last year that focused on the developmental struggles Latin America faced as a result of having their natural commodities trade being dominated by an outside power. To use Brazil as an example, the rubber trade has not only decimated the amazon rainforest, but it is also a particularly inefficient one that benefits outside manufacturers much more than the people of Brazil itself. For this reason, Brazil is not able to maximize revenue of its natural resources, which can result in a lack of economic development. This and many other cases of unequal ecological exchange are often a byproduct of colonialism.
Posted by: Dara Bage | 09/18/2024 at 10:15 PM
This past semester, I was lucky enough to take Modern Latin American History. One of the papers we read described the "Open Veins of Latin America" - these "open veins" seem to be on full display in all 'lagging' countries, regardless of whether Simon Bolivar gets featured during Independence Day celebrations.
"Open Veins" argues that industrial powers, namely the United States and China, perpetuate expoert-based mercantilist economic systems. That is, the US and China push (or at least do not hold their own firms accountable for) policies that hinder Latin American manufacturing and infrastructure buildout. This can look like shipping raw materials abroad to be processed, reselling manufactured goods produced at an extreme markup, or cementing monopoly over certain industries/shipping networks.
The US has some experience with "open veins." When the British placed a tax on American tea in 1776, the Americans demonstrated their "freedom" at the Boston Tea Party.
The Argentine and Chilean schools of economic thought dreamt up something a little less ... chilly. Economists Raul Prebisch and his team advocated for and implemented ISI, or import-substitution-industrialization. Prebisch believed that if the Argentine government placed a prohibitively high tariff on foreign goods, fledging domestic industries would become competitive. And they did! - until the '70s, when Argentina's borrowing to cover Peronist budget deficits birthed the conditions that created today's Argentine debt trap.
This story always makes me wonder what the process to "undig" a country out of this kind of economic hole looks like. How do you incentivize policymakers and your peers to act?
Posted by: Grace Rustay | 09/19/2024 at 01:41 AM
It was interesting to notice that many of the developing countries had a similar problem: being too dependent on an agricultural product which led to crises because the products prices went down, slowing down the growth of their economies. For example, in Cote D’Ivoire they were too dependent on cacao and there was no alternative use of land, so when trade decreased because cacao prices went down, their economy struggled heavily. A lot of government corruption is also present in developing countries and I’m curious to see the best ways to handle those major issues and ensure that the money doesn’t go into the hands of corrupt government leaders. On the other hand, it was interesting to see that many of the fast growing economies occurred due to the switch to export oriented industries and trade with other countries. I wonder if developing countries have the opportunity to do that and if that would help them grow their economies.
Posted by: Osoukhoveev | 09/24/2024 at 01:42 PM