Why Development Economics Should Not Only Be About Economics

At the engrossing Why Nations Fail blog run by Daron Acemoglu and James Robinson;

Back in the 1950s development economists viewed poor countries as being stuck in various types of “poverty traps”. The basic idea was that poverty tends to breed poverty. And poor countries just happened to be poor and trapped in poverty. The most popular version emphasized the availability of capital. Poverty made saving and capital accumulation impossible, according to this view, and as a result, it persisted — come to think of it, there are still some who subscribe to this view, but we are digressing….

One of the most famous versions of this thesis was Paul Rosenstein-Rodan’s “Big Push” thesis. Rosenstein-Rodan’s argument was similar to what many others in the 1950s and 60s formulated: development was about moving people from “backward” to more productive “modern” sectors of the economy. And this could only happen if everyone coordinated their behavior and increased their investments — so the Big Push required a big push in capital accumulation.

One thing that all of these theories had in common— and, digressing again a little bit, one thing they share with several current theories of economic development — was that they were only about economics. Politics and institutions didn’t matter; only “economic fundamentals” mattered. The ones Rosenstein-Rodan emphasized were how much a society saved and how much foreign aid they got (which in the 1950s and 1960s was assumed to simply add to capital accumulation).

Of course, things didn’t quite work out that way. In fact, many of the economies about which Rosenstein-Rodan was bullish are not much richer today than they were in 1961. Liberia and Haiti’s economies contracted since then. Angola, Kenya, Nigeria and Uganda haven’t done so well either. We of course know that Afghanistan, India and Pakistan grew more slowly than South Korea, Taiwan, Thailand and Singapore. Argentina and Haiti were no match for Costa Rica, the Dominican Republic and Panama.

The main reason why Rosenstein-Rodan got it so wrong is because he completely ignored the role of institutions and politics.

Now the thing is that, though most economists today would espouse more sophisticated theories than those of Rosenstein-Rodan, much of development economics — especially when it comes to the practice of development — still ignores institutions and politics.

These two know economic development and if they say this kind of fundamental thinking is still widespread then that is an egregious problem since looking at solely economics gives such massively missed forecasts as Rosenstein-Rodan. Acemoglu and Robinson focus on extractive institutions a lot and the politics of how they keep countries mired in the same economic underdevelopment. To me the divergence in economic development makes a lot of sense for all formerly colonized countries. African nations, in particular, were treated vastly dissimilar based on which European nation was in charge of their institutions. Since women’s education and literacy is an incredibly important component for economies to jump-start development, looking at women’s educational attainment levels seems like a place to start forecasting. For example, colonial African educational policies differed which affects those countries well after colonial rule. Countries formerly under British control have a much greater percentage of women at all levels of educational attainment than countries formerly under French control. Luckily Acemoglu and Robinson are helping to spread the type of approach needed to continue the upward trajectory of economic development rather than seeking gain from an economic standpoint which does not see the whole picture.

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