1/6
Good Soumaya Keynes piece on the rarity of true economic convergence between backward and advanced economies. There is a widespread assumption that economic backwardness must lead to faster growth as capital and labor inputs are forced up.
via @ftft.com/content/e7e956…
Good Soumaya Keynes piece on the rarity of true economic convergence between backward and advanced economies. There is a widespread assumption that economic backwardness must lead to faster growth as capital and labor inputs are forced up.
via @ftft.com/content/e7e956…
2/6
Even within countries, the assumption is that with enough investment, poorer regions will catch up to richer ones. By diverting enough capital to a poor country or region, and mobilizing enough labor, the poorer economy will eventually converge to the richer one.
Even within countries, the assumption is that with enough investment, poorer regions will catch up to richer ones. By diverting enough capital to a poor country or region, and mobilizing enough labor, the poorer economy will eventually converge to the richer one.
3/6
But I disagree. Advanced economies are "advanced" because they have a specific set of institutions that, given their particular conditions, allow their workers and businesses to exploit labor and capital inputs most productively.
But I disagree. Advanced economies are "advanced" because they have a specific set of institutions that, given their particular conditions, allow their workers and businesses to exploit labor and capital inputs most productively.
4/6
To put it another way, advanced economies are advanced not because they have invested more. On the contrary – they are only able to invest more because they are advanced, and they are advanced because of their political, legal, business, financial, and other institutions.
To put it another way, advanced economies are advanced not because they have invested more. On the contrary – they are only able to invest more because they are advanced, and they are advanced because of their political, legal, business, financial, and other institutions.
5/6
That is why, I would argue, advanced economies that have been laid low by devastating wars (e.g. Germany and Japan after WW2) mostly just needed surging investment to return to their former advanced-economy status, whereas the very few backward economies that achieved...
That is why, I would argue, advanced economies that have been laid low by devastating wars (e.g. Germany and Japan after WW2) mostly just needed surging investment to return to their former advanced-economy status, whereas the very few backward economies that achieved...
6/6
advanced-economy status in the past 100 years were only able to do so after undergoing massive institutional transformations.
Douglass North was right: it is mainly institutions that matter.
advanced-economy status in the past 100 years were only able to do so after undergoing massive institutional transformations.
Douglass North was right: it is mainly institutions that matter.
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