CROSS-COUNTRY INCOME DIFFERENCES, Tesine universitarie di Economia Politica

Scarica CROSS-COUNTRY INCOME DIFFERENCES e più Tesine universitarie in PDF di Economia Politica solo su Docsity! CROSS-COUNTRY INCOME DIFFERENCE CAN PERSIST OVER TIME, AND SO DO DIFFERENCES IN DEVELOPMENT ACROSS COUNTRIES. CAN POLICIES OVERTURN THESE PERSISTENT DIFFERENCES? CAN COOPERATION POLICIES PLAY A MEANINGFUL ROLE THAT IS JUSTIFIED ON SOLID GROUNDS? This opinion piece agrees with the following statement: “Cross-country income difference can persist over time, and so do differences in development across countries”, and argues in favor of the importance of policies in overturning these persistent differences. First of all, it is important to understand why cross-country income differences exist. There are many potential explanations for the different patterns of development across countries, the main three involve geography, culture and institutions. According to Acemoglu and Robinson, the geography theory claims that differences in the environment, climate and location of the country can determine its success or failure. For example, in tropical countries, tropical diseases can influence the labor force by making it weaker, therefore this leads to less productivity. Also, tropical soil could be less fit for agriculture, therefore it would need more incentives and it would imply a longer path to development. The second one, the culture theory, argues that it is the culture of a country that determines its development, because the different values, preferences and beliefs of individuals play a key role in shaping economic performance. An example here could be the one proposed by Weber, with his idea that Protestantism, emphasizing hard work, led to the success of protestant countries. And finally, the institution theory asserts that, always according to Acemoglu and Robinson, economic institutions are the fundamental cause of different patterns of economic growth. Because it is how humans decide to manage and organize the society that determines the prosperity of the country. Among these three theories, the most plausible one is the institution one. We could say that differences in prosperity across countries are mainly due to differences in economic institutions. As Acemoglu and Robinson say, political institutions and the distribution of political power in society influence the choice of economic policies, which, in turn, may determine economic success of a country. The solution would be to reform political institutions and their policies but institutions themselves are chosen by individuals and they evolve in response to changing political and economic conditions. Starting from this point, this opinion piece argues that policies can influence and change the differences in development across countries but there are many variables that need to be taken into account. 1 For example, let’s take into consideration the case of Korea. Before the division of the country in two parts in 1953, North and South Korea shared the same history, culture and geography. After the separation, the two halves were organized in different ways according to the different institutions and policies in force, and they followed diverging paths of economic development: South Korea experienced prosperity while North Korea stagnated. This is attributable to their institutions and policies, in fact north Korea chose communist policies that didn’t work, while south Korea applied a market- oriented economy that led the country to success. Another example in favor of the institution theory that is worth mentioning is the one about the Reversal of fortune. Acemoglu and Robinson argue that the nations that can now be found where the richest civilizations lived in 1500, are among the poorest societies today. On the contrary, territories that in the past were occupied by the less-developed civilizations, are now among the richest. Thus, they experienced a reversal of fortune that is explicable through the European colonization. When European colonizers came to those territories, they imposed different sets of institutions based on their interests and on the conditions and endowments of the colonies, which then shaped economic performance and led to a reversal of fortune. Here again we can see that it is always the institutions and the policies that change and shape the situation. After this evidence in favor of the institution theory, I will now present an argument disproving the main claim of this paper: path dependence. Path dependence is the tendency of institutions to develop in certain ways as a result of their structure or their beliefs and values, and it is a key concept to explain why institutions do not change as much as might be expected. In fact, according to the national heritage view explained in Karla Hoff’s paper, national heritage has a preeminent influence on institutions. Also Douglass C. North in his paper “The role of institutions in economic development”, talks about the cultural heritage of humans, explaining that institutions and beliefs are carried on generation by generation and shape the way we see the world and the way in which institutions and societies evolve. He argues that institutions are path dependent, meaning that bad institutions may come from the past and constrain our behavior, thus leading to poor and bad policies. Power and institutions evolve over time often in ways that tend to reinforce initial conditions, mainly because political elites fail to learn from experience and because they follow their own interests. That’s why the early differences in cultural values can still determine policy choices today. Then, as far as the role of cooperation policies, this opinion piece argues that they can be important and meaningful, but it depends on how they are carried out. In fact, international cooperation can be relevant to achieve common goals, like the sustainable development ones, or to help countries in need, for example to build domestic capacities, but it can also be controversial as its results are not always as expected and its effectiveness is difficult to measure. 2