Persistence in Economic Development

Last weekend I attended a conference at Brown University on "Deep-Rooted Factors in Economic Development". The key theme that came out of that weekend was persistence. Nearly all of the papers gave evidence that economic shocks or initial differences in economic outcomes dissipate very, very slowly, if at all.

Oded Galor and Omer Ozak presented a paper on the origin of time preferences (e.g. patience). They find surprisingly strong empirical evidence linking inherent agricultural yields to survey responses regarding patience, with the argument being that places with high returns to settled agriculture (which requires patience) selected for higher patience populations over time. Stelios Michalopoulos, Louis Putterman, and David Weil presented evidence that African individuals descended from agriculturalist societies are more economically successful than those descended from pastoralists, even if we compare people who no longer reside in their traditional homelands. Both papers show the very long reach of history on current economic outcomes.

Related to this were a number of papers that looked at how economies responded to shocks. Eric Chaney and Richard Hornbeck showed that following the explusion of the Moriscos from Spain in 1609, the population and income per capita in the heavily-affected regions did not adjust immediately (i.e. in a decade) but over a much longer time frame (i.e. a century). Felipe Valencia-Caicedo provided evidence on the persistent effect of Jesuit missions in South America on human capital formation. Enrico Spolaore and Romain Wacziarg looked empirically at how long it took the "idea" of low fertility to spread from France across Europe. Melissa Dell presented work on how areas subject to insurgency during the Mexican Revolution (early 20th century) are still economically less developed than other areas of Mexico.

The fact that very early agricultural conditions are still influential in comparative development, or that economic shocks linger for centuries, is very hard to reconcile with how we typically think about economic growth. Even if one country/area starts with bad conditions, or is subject to a bad shock, all of our intuition is that they should eventually be able to catch back up. Physical and human capital can be accumulated through savings or education, and this accumulation should actually speed up the farther away from its potential that a country finds itself. Technological changes are, as we like to say, non-rival and non-excludable, so that countries can copy innovations relatively easily. While there is certainly a lag involved in either saving up new capital or adopting new technologies, we're talking about lags measured in years, not centuries.

For technology, or productivity in general, it seems especially hard to understand long-run persistence. Why is it that poor places, or people, do not just adopt the higher-productivity techniques/ideas/processes that they see around them? My reaction to the papers I saw at Brown was that we are probably too cavalier in assuming that these ideas can be costlessly copied. We are probably better off thinking of ideas as embodied in people, like cultural traits. Ricardo Hausman just had an interesting post on this; he thinks knowledge is generally tacit, not explicit. Therefore it takes some kind of costly person-to-person transmission to move good ideas or techniques across populations.

With costly transmission, persistence makes more sense. We're seeing the outcome of a slow diffusion of new ideas (on patience, fertility, the value of education, or agricultural techniques) through populations. That slow diffusion comes about because these ideas are transmitted as tacit knowledge from parents to children, masters to apprentices, teachers to students, or old employees to new employees. If a bad shock wipes out tacit knowledge (say by expelling experienced workers or changing the climate), then it isn't necessarily true that an economy would eventually return back to its pre-shock equilibrium. Once the tacit knowledge is gone, its gone.

This is all telling me that I need to think harder about diffusion processes. Is there some kind of transmission of traits conducive to growth going on, either genetically (like in Galor and Moav, 2002) or culturally (like in Doepke and Zilibotti, 2008)? Are language differences and/or genetic differences the key to measuring the frictions in the diffusion process (like in Spolaore and Wacziarg, 2009)?

The reading list just keeps growing.

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