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Summary Chapter 1 - The causes of long run development
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- Katholieke Universiteit Leuven (KU Leuven)
Dit is de les van hoofdstuk 1 - The causes of long run development - van G. De Luca, volledig uitgeschreven!
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1. The causes of long run development (G. De Luca)What drives long term development? (geography, institutions and culture)
Why are some countries rich and some poor? Where is the difference? What does it depend on?
Sources of prosperity
Vast differences in prosperity across countries today
- Income per capita in sub-Saharan Africa on average 1/20th of U.S. income per capita (in PPP). big
variation
- In Central African Republic of Congo, Democratic Republic of the Congo, and Burundi, 1/50th of U.S.
income per capita. poorest countries
Why?: Standard economic answers:
- Physical capital differences: poor countries don’t save enough so lag behind (so don’t have enough
physical capital)
- Human capital differences: poor countries don’t invest enough in education and skills for labor (so
don’t have enough human capital)
- “Technology” differences: poor countries don’t invest enough in R&D and technology adoption, and
don’t organize their production efficiently
These are proximate causes of differences in prosperity.
Questions that arise:
- Why do some countries invest less in physical and human capital?
- Why do some countries fail to adopt new technologies and to organize production efficiently?
The answer to these questions is related to the fundamental causes of differences in prosperity:
- Geography
- Institutions
- Culture (differences in beliefs, attitudes and preferences)
Does this matter for economic development?
, 1. Geography
Hypothesis: Geographical characteristics can directly or indirectly influence the prosperity of a country.
Montesquieu (18th century) already collected thoughts about this idea of geography during his travels:
- “The heat of the climate can be so excessive that the body there will be absolutely without strength.
So, prostration will pass even to the spirit; no curiosity, no noble enterprise, no generous sentiment;
inclinations will all be passive there … ” Moreover, people there tend to be “too hot tempered”.
“People are more vigorous in cold climates”. In northern countries they might be “too icy or stiff”.
He says that if the climate is too hot, has a direct effect on the behavior of individuals and on the
local economy! If you move to colder climates, people are more stiff
- Ideal climate? Temperate like in France.
- He argues that lazy people tend to be governed by despots, while vigorous people could be governed
in democracies. Thus hot climates are conducive to authoritarianism and despotism (which hamper
development). So hot climates are less developed economies!
Jeffrey Sachs is a more modern economist:
- “Tropical agriculture faces several problems that lead to reduced productivity”. (see data)
So productivity is lower in tropical agriculture. This is a limitation of development in tropical
countries.
- “The burden of infectious disease is similarly higher in the tropics than in the temperate zones”.
F.e. malaria is out of control of human beings, this gives a lower growth/development rate
- “Economies in temperate ecozones are generally rich” because “certain parts of the world are
geographically favored. Geographical advantages might include access to key natural resources, access
to the coastline and sea, advantageous conditions for agriculture, advantageous conditions for human
health.”
Data:
- Non tropical countries have 3 times the GDP/capita of a tropical country.
- They are intermediate in the sub-tropical area (between the 2 zones), the sub-tropical is richer than
the tropical country and less rich then the temperate countries. So there is something true in
Jeffrey Sachs sayings.
- Pattern suggests that a more tropical country is poorer!
,Data of agricultural productivity:
- Agricultural productivity in tropics is 50% of the temperate area
- For all of the cereals, the temperate zone produces more as compared to the tropical zone. The
tropical produces 51.6% of what the temperate should produce.
Map of 1995 (still the same now):
- The darker, the richer the country
- Clear pattern in Africa, Latin-America and Asea
- Countries in the tropical band are poorer!
- Evidence that Malaria is higher in tropical countries.
- They are negative of the previous map
, - Latitude (closer to the origin/equator, left) & income has a positive relation
- The further away from the equator, the higher income/capita in that country
So is there a causal relationship between the geography and income/capita?
NO! You can’t take simple correlations as a causal relationship! There are omitted variables bias: also other
omitted factors, institutions, human nature, culture (they vary across countries and can be correlated with
both economic performance and geographic variables.) So we can’t trust this simple correlation as indicating
any causality!
Regression analysis:
- 1. Tropical: negative coefficients that are significant!
The more tropical (larger share of territory of a country in the tropical bound), the lower the
GDP/capita in 1950.
- 2. Malaria index 1994: how much prown Malaria the country is. Also negative and significant.
The country that is prown to Malaria gets a lower GDP/capita. It’s also an issue in non-African
countries (column 5) and countries with a better institution quality (column 6).
- 3. Topical: negative and significant (column 2) and not significant (column 3)
- 4. When we control for malaria, it’s negative and significant.
The main channel is the infection diseases (malaria)!!!
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