Article Review

Title: How Deep Are the Roots of Economic Development?
Author: Enrico Spolaore and Roman Wacziarg
Scope: 4.5 stars
Readability: 2.5 stars
My personal rating: 5 stars
See more on my book rating system.

Topic of Article

The authors explore the deep causes of economic development, including geography and history.

My Comments

This article is not very fun reading, but the conclusions are very useful. I recommend reading this summary and skipping the article unless you are a serious academic.

Key Take-aways

• Most people overestimate the importance of policy and institutions to determining which nations are rich and poor.
• The overall level technology and productivity of nations has very stable across centuries of history. In other words, rich nations tend to stay richer than other nations, while poor nations tend to stay poorer than other nations.
• When large groups of immigrants move to another geographical region, they carry their “richness” and “poorness” with them. They do so even if they leave all their possessions behind in the old country.
• The immigration of Europeans to much of the rest of the world from 1500 to 1900 was one of the most important factors in enriching the rest of the world.
• Geography plays a central role in determining which nations are rich and poor, but migration of people can overcome geography.

Important Quotes from Article

Why is income per capita higher in some societies and much lower in others? Answers to this perennial question have evolved over time. Decades ago, the emphasis was on the accumulation of factors of production and exogenous technological progress. Later, the focus switched to policies and incentives endogenously affecting factor accumulation and innovation. More recently, the attention has moved to the institutional framework underlying these policies and incentives. Pushing back the debate one more degree, a key question remains as to why the proximate determinants of the wealth of nations vary across countries. A burgeoning literature seeks to better understand the deep causes of development, rooted in geography and history.

There is mounting evidence that much of the correlation operates through indirect mechanisms, i.e. through the historical effects of initial geographic conditions on the spatial distribution of human characteristics, such as institutions, human capital, social capital and cultural traits, affecting income and productivity over the long run.

A major theme emerging from the recent literature is that key human characteristics affecting development are transmitted from one generation to the next within populations over the long run, explaining why deep historical factors still affect outcomes today.

A small set of geographic variables (absolute latitude, the percentage of a country’s land area located in tropical climates, a landlocked country dummy, an island country dummy) can jointly account for 44% of contemporary variation in log per capita income, with quantitatively the largest effect coming from absolute latitude.

When [entering biogeography], the geographic conditions variable remains highly significant and the overall explanatory power of the regressors remains large (52%). These empirical results provide strong evidence in favor of Diamond’s hypotheses, while suggesting that the geographic component of the story is empirically more relevant than the biological component… by restricting the sample to the Old World (defined as all countries minus the Americas and Oceania). The effect of geography now rises to 64% – again highly consistent with Diamond’s idea that biogeographic conditions matter mostly in the Old World.

Overall, their findings suggest that long-term features of populations, rather than institutions in isolation, play a central role in explaining comparative economic success.

They also show that a variable capturing the extent of European ancestry accounts for 41% of the variation in per capita income, a topic to which we turn in the next subsection.

Putterman and Weil’s results strongly suggest that the ultimate drivers of development cannot be fully disembodied from characteristics of human populations. When migrating to the New World, populations brought with them traits that carried the seeds of their economic performance. This stands in contrast to views emphasizing the direct effects of geography or the direct effects of institutions, for both of these characteristics could, in principle, operate irrespective of the population to which they apply. A population’s long familiarity with certain types of institutions, human capital, norms of behavior or more broadly culture seems important to account for comparative development.

While there is significant persistence in development, this persistence is a characteristic of human populations and not of geographic locations.

A first message from this research is that technology and productivity tend to be highly persistent even at very long horizons. A major finding is the indirect and persistent effect of prehistorical biogeographic conditions.

The importance of controlling for populations’ ancestry highlights the second message from this literature: long-term persistence holds at the level of populations rather than locations. A focus on populations rather than locations help us understand both persistence and reversal of fortune, and sheds light on the spread of economic development.

The third message from this literature, then, is that long-term genealogical links across populations play an important role in explaining the transmission of technological and institutional knowledge and the diffusion of economic development.

One could obtain misleading conclusions about the effects of specific policies and institutions when not taking into account the role of long-term variables.

This can be interpreted as an example of a more general approach to development policies: if you want to develop, build on historical precedent but try to generalize exceptions to the persistence of economic fortunes.