Why isn't every country rich?

There are two big questions floating around here. First, are countries (or populations, or regions) rich because of some persistent characteristic that can be traced backwards through history? Second, are those characteristics determined by geography, institutions, culture, or just plain luck?

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Academic References

  1. Acemoglu, D. and Robinson, J. (2012) Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York, NY: Crown Publishers.
  2. Alesina, A., Giuliano, P. and Nunn, N. (2013) “On the Origins of Gender Roles: Women and the Plough,” The Quarterly Journal of Economics, 128(2), pp. 469–530. Available at: Link.
    • Abstract

      The study examines the historical origins of existing cross-cultural differences in beliefs and values regarding the appropriate role of women in society. We test the hypothesis that traditional agricultural practices influenced the historical gender division of labor and the evolution of gender norms. We find that, consistent with existing hypotheses, the descendants of societies that traditionally practiced plough agriculture today have less equal gender norms, measured using reported gender-role attitudes and female participation in the workplace, politics, and entrepreneurial activities. Our results hold looking across countries, across districts within countries, and across ethnicities within districts. To test for the importance of cultural persistence, we examine the children of immigrants living in Europe and the United States. We find that even among these individuals, all born and raised in the same country, those with a heritage of traditional plough use exhibit less equal beliefs about gender roles today. JEL Codes: D03, J16, N30. Copyright 2013, Oxford University Press.

  3. Alsan, M. (2015) “The Effect of the TseTse Fly on African Development,” American Economic Review, 105(1), pp. 382–410. doi: 10.1257/aer.20130604.
    • Abstract

      The TseTse fly is unique to Africa and transmits a parasite harmful to humans and lethal to livestock. This paper tests the hypothesis that the TseTse reduced the ability of Africans to generate an agricultural surplus historically. Ethnic groups inhabiting TseTse-suitable areas were less likely to use domesticated animals and the plow, less likely to be politically centralized, and had a lower population density. These correlations are not found in the tropics outside of Africa, where the fly does not exist. The evidence suggests current economic performance is affected by the TseTse through the channel of precolonial political centralization. (JEL I12, N57, O13, O17, Q12, Q16, Q18)

  4. Andersen, T. B., Dalgaard, C.-J. and Selaya, P. (2016) “Climate and the Emergence of Global Income Differences,” Review of Economic Studies, 83(4), pp. 1334–1363. Available at: Link.
    • Abstract

      The latitude gradient in comparative development is a striking fact: as one moves away from the equator, economic activity rises. While this regularity is well known, it is not well understood. Perhaps the strongest correlate of (absolute) latitude is the intensity of ultraviolet radiation (UV-R), which epidemiological research has shown to be a cause of a wide range of diseases. We establish that UV-R is strongly and negatively correlated with economic activity, both across and within countries. We propose and test a mechanism that links UV-R to current income differences via the impact of disease ecology on the timing of the take-off to sustained growth.

  5. Chanda, A., Cook, C. J. and Putterman, L. (2014) “Persistence of Fortune: Accounting for Population Movements, There Was No Post-Columbian Reversal,” American Economic Journal: Macroeconomics, 6(3), pp. 1–28. Available at: Link.
    • Abstract

      Using data on place of origin of today’s country populations and the indicators of level of development in 1500 used by Acemoglu, Johnson, and Robinson (2002), we confirm a reversal of fortune for colonized countries as territories, but find persistence of fortune for people and their descendants. Persistence results are at least as strong for three alternative measures of early development, for which reversal for territories, however, fails to hold. Additional exercises lend support to Glaeser et al.’s (2004) view that human capital is a more fundamental channel of influence of precolonial conditions on modern development than is quality of institutions.

  6. Comin, D., Easterly, W. and Gong, E. (2010) “Was the Wealth of Nations Determined in 1000 BC?,” American Economic Journal: Macroeconomics. American Economic Association, 2(3), pp. pp. 65–97. Available at: Link.
    • Abstract

      We assemble a dataset on technology adoption in 1000 BC, 0 AD, and 1500 AD for the predecessors to today’s nation states. Technological differences are surprisingly persistent over long periods of time. Our most interesting, strong, and robust results are for the association of 1500 AD technology with per capita income and technology adoption today. We also find robust and significant technological persistence from 1000 BC to 0 AD, and from 0 AD to 1500 AD. The evidence is consistent with a model where the cost of adopting new technologies declines sufficiently with the current level of adoption.

  7. Cook, C. J. (2014) “Potatoes, milk, and the Old World population boom,” Journal of Development Economics, 110(C), pp. 123–138. Available at: Link.
    • Abstract

      This paper explores the role of two foods, potatoes and milk, in explaining the increase in economic development experienced throughout the Old World in the 18th and 19th centuries. Nunn and Qian (2011) show the introduction of the potato from the New World has a significant explanatory role for within country population and urbanization growth over this period. I expand on this by considering the role of milk consumption, which is hypothesized to be a complement in diet to potatoes due to a differential composition of essential nutrients. Using a country-level measure for the suitability of milk consumption, the frequency of lactase persistence, I show that the marginal effect of potatoes on post-1700 population and urbanization growth is positively related to milk consumption. As the frequency of milk consumption approaches unity, the marginal effect of potatoes more than doubles in magnitude compared to the baseline estimate of Nunn and Qian.

  8. Galor, O. and Özak, Ömer (2016) “The Agricultural Origins of Time Preference,” American Economic Review, 106(10), pp. 3064–3103. Available at: Link.
    • Abstract

      This research explores the origins of observed differences in time preference across countries and regions. Exploiting a natural experiment associated with the expansion of suitable crops for cultivation in the course of the Columbian Exchange, the research establishes that pre-industrial agro-climatic characteristics which were conducive to higher return to agricultural investment triggered selection, adaptation, and learning processes that generated a persistent positive effect on the prevalence of long-term orientation in the contemporary era. Furthermore, the research establishes that these agro-climatic characteristics have had a culturally embodied impact on economic behavior such as technological adoption, education, saving, and smoking.

  9. Guiso, L., Sapienza, P. and Zingales, L. (2006) “Does Culture Affect Economic Outcomes?,” Journal of Economic Perspectives, 20(2), pp. 23–48. Available at: Link.
    • Abstract

      Until recently, economists have been reluctant to rely on culture as a possible determinant of economic phenomena. Much of this reluctance stems from the very notion of culture: it is so broad and the channels through which it can enter the economic discourse so ubiquitous (and vague) that it is difficult to design testable, refutable hypotheses. In recent years, however, better techniques and more data have made it possible to identify systematic differences in people’s preferences and beliefs and to relate them to various measures of cultural legacy. These developments suggest an approach to introducing culturally-based explanations into economics that can be tested and may substantially enrich our understanding of economic phenomena. This paper summarizes this approach and its achievements so far, and outlines directions for future research.

  10. Henderson, J. V. et al. (2016) The Global Spatial Distribution of Economic Activity: Nature, History, and the Role of Trade. NBER Working Papers 22145. National Bureau of Economic Research, Inc. Available at: Link.
    • Abstract

      We study the distribution of economic activity, as proxied by lights at night, across 250,000 grid cells of average area 560 square kilometers. We first document that nearly half of the variation can be explained by a parsimonious set of physical geography attributes. A full set of country indicators only explains a further 10%. When we divide geographic characteristics into two groups, those primarily important for agriculture and those primarily important for trade, we find that the agriculture variables have relatively more explanatory power in countries that developed early and the trade variables have relatively more in countries that developed late, despite the fact that the latter group of countries are far more dependent on agriculture today. We explain this apparent puzzle in a model in which two technological shocks occur, one increasing agricultural productivity and the other decreasing transportation costs, and in which agglomeration economies lead to persistence in urban locations. In countries that developed early, structural transformation due to rising agricultural productivity began at a time when transport costs were still relatively high, so urban agglomerations were localized in agricultural regions. When transport costs fell, these local agglomerations persisted. In late developing countries, transport costs fell well before structural transformation. To exploit urban scale economies, manufacturing agglomerated in relatively few, often coastal, locations. With structural transformation, these initial coastal locations grew, without formation of more cities in the agricultural interior.

  11. Michalopoulos, S. and Papaioannou, E. (2013) “Pre-colonial Ethnic Institutions and Contemporary African Development,” Econometrica, 81(1), pp. 113–152.
    • Abstract

      We investigate the role of deeply-rooted pre-colonial ethnic institutions in shaping com- parative regional development within African countries. We combine information on the spatial distribution of ethnicities before colonization with regional variation in contempo- rary economic performance, as proxied by satellite images of light density at night. We document a strong association between pre-colonial ethnic political centralization and re- gional development. This pattern is not driven by differences in local geographic features or by other observable ethnic-specific cultural and economic variables. The strong positive association between pre-colonial political complexity and contemporary development ob- tains also within pairs of adjacent ethnic homelands with different legacies of pre-colonial political institutions.

  12. Nunn, N. (2008) “The Long-Term Effects of Africa’s Slave Trades,” The Quarterly Journal of Economics. Oxford University Press, 123(1), pp. 139–176. Available at: Link.
    • Abstract

      Can part of Africa’s current underdevelopment be explained by its slave trades? To explore this question, I use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during Africa’s slave trades. I find a robust negative relationship between the number of slaves exported from a country and current economic performance. To better understand if the relationship is causal, I examine the historical evidence on selection into the slave trades and use instrumental variables. Together the evidence suggests that the slave trades had an adverse effect on economic development.

  13. Olson, M. (1996) “Distinguished Lecture on Economics in Government: Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others Poor,” The Journal of Economic Perspectives. American Economic Association, 10(2), pp. 3–24. Available at: Link.
    • Abstract

      Some research presumes that, when rational parties bargain, nothing is left on the table, so that social outcomes are efficient and leave countries on the frontiers of their aggregate production functions. A study of differences in per capita incomes across countries shows that this cannot be the case. Countries’ endowments of natural and human resources do not explain any significant part of the variation in incomes and the mobility of capital assures that it is impartially available to all countries. National differences in the quality of policies and institutions across countries mainly account for differences in per capita incomes.

  14. Putterman, L. and Weil, D. N. (2010) “Post-1500 Population Flows and the Long-Run Determinants of Economic Growth and Inequality,” Quarterly Journal of Economics. MIT Press, 125(4), pp. 1627–1682.
    • Abstract

      We construct a matrix showing the share of the year 2000 population in every country that is descended from people in different source countries in the year 1500. Using the matrix to adjust indicators of early development so that they reflect the history of a population’s ancestors rather than the history of the place they live today greatly improves the ability of those indicators to predict current GDP. The variance of the early development history of a country’s inhabitants is a good predictor for current inequality, with ethnic groups originating in regions having longer histories of organized states tending to be at the upper end of a country’s income distribution.

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