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January 15, 2008


Mitchell Hoffman

The articles this week provide several different explanations for the phenomenon of divergence. It is not difficult to show that there are serious problems and uncertainties with all of these explanations. I believe it would be interesting to focus on the phenomena of war/conflict and corruption in explaining divergence in a ‘flattened,’ more integrated world.

Divergence is documented in the article by Ritchett. His observation is straightforward: Among one group of countries, growth rates have been inversely related to GDP per capita at the start of the modern era (around 1870). These countries called, developed, have seen convergence. In contrast, outside of these countries, the pattern is absent. Many of these developing countries, despite their low initial incomes, have grown slower than developed countries, making their relative position to developed countries far worse than it was 140 years ago. I think it would be worth positing some statistical distributions where these phenomena are simply the outcome of a random process, but overall, in spite of some difficulties in showing divergence (e.g. assuming a lower bound for GDP per capita in developing countries and imputing pre-1950 GDP values) the divergence phenomena appears present. Maddison presents a challenge to Ritchett by arguing that Europe was already rich before the Industrial Revolution, so that there are fewer facts to be explained. Picking a side in this debate requires some understanding of the quality of past GDP data (which I do not have), so for this memo I will assume the existence of divergence.

Easterlin argues that divergence is caused by difference in the education level of different workforces; more educated populations can absorb and imitate technologies invented in other countries. His argument is primarily anecdotal instead of empirical. Though schooling is usually significant in cross-country growth regressions, the issue of causality is difficulty: Does schooling cause higher growth, or is schooling a luxury good that wealthier countries can afford? There are many highly educated countries that have had less than optimal growth records. I spent last summer in the Philippines, where I was told that around two thirds of college-age students are currently attending college (in the Barro-Lee schooling data the Philippines is very high, higher than many developed countries). However, the country as a whole is still relatively poor (and growth has been uneven). Instead of helping start new manufacturing firms at home, many educated Filipinos go to work abroad (this is a way that globalization may actually promote divergence by giving high-talent workers opportunities to leave their home countries).

Rodrik argues that Korea and Taiwan grew rich because of government policies that helped eliminate coordination failures. Challenging the export orientation argument in past literature on East Asian growth, Rodrik asserts that the strong central governments in Korea and China steered businessmen away from rent-seeking into socially-efficient forms of enterprise. His argument is both unorthodox and very interesting. However, it is difficult to extrapolate it relevance for understanding global divergence, as (notes Rodrik) many economies led by strong central governments have failed.

One casual observation in understanding divergence is that while North America and Western/Central Europe have enjoyed almost 60 years of tranquility, other parts of the world, particularly Africa, have seen years and years of war and conflict. Even if a country does not experience a war itself, having trading partners at war, and having foreign investors view one’s neighbors as being at war, is likely very detrimental for development. In a separate explanation, corruption is also much less significant in North America and Europe than in the developing world. In the Philippines, local people I talked to about the economy almost uniformly emphasized corruption as the source of their economic woes. Although much recent work in economics has analyzed both war and corruption, I would like to see both explanations used specifically to address the question of divergence.

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