Via Econlog, Paul Romer says:
"I would distinguish questions about development from questions about growth. Development is the set of questions around why some people, some nations have very low standards of living compared with others...
What's wrong in many parts of the world is they don't have these institutions, and of the two [kinds], it's much more the market institutions which are fundamentally lacking, because if you think about it, a poor country in sub-Saharan Africa could get enormous benefits from just making use of what's already known in the rest of the world without necessarily contributing to that body of knowledge itself. If they could just put in place institutions that let them essentially freeload, take advantage of what's already known, they could do much better."
Most of the difference between the third and first world is in agricultural technology. So what Paul is saying is why are the Africans and Amazonian Brazilians so stupid that they don't just adopt the latest high-yielding, rust resistant variety of Winter Wheat from Iowa? It must be their institutions, Paul sayeth. Well, of course, their soils are completely unsuitable for wheat developed for Iowa. African pests are completely unlike European or North American pests. What Africans need is a higher yielding variety of Cassava, developed for Africa -- except they can't exactly take that technology from rich countries now, can they?
Somebody hasn't read his Alfred Crosby, his Jared Diamond, his Jeffrey Sachs, his Andrew Kamarck...
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Why couldn't they just buy agriculture on the world market and produce something else? A little comparative advantage. The reason is that Romer is right, they lack the necessary institutions to make use of all the first worlds technological innovations.
ReplyDeleteThe legal institutions and cultural norms of the third world are what hold them down. Not agricultural tech and not their geography.
OK, so Africa is going to fill itself up by buying French wine, Kobe beef and mail-order Omaha steaks? Why don't they just eat cake as well?
ReplyDeleteThe third-world's manufacturing productivity is actually much more similar to the first world's -- the really big gap is in Agricultural value added. And the US does export a lot of agricultural stuff...
Even so, Africa faces other problems -- hunger, protein deficiency, lack of infrastructure, high transport costs from the interior... 80% of Tanzanians get part of their income from agriculture or fishing -- they haven't beaten Malthus yet. Their population has grown from like 7 million to 44 million since 1950 (if memory serves...) -- that's actually fairly fast economic growth, even if their incomes are no higher.
It's also true that their institutions suck. But, if they could employ western agricultural technology, they'd be much better off...