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Geography, culture, institutions and economic growth

Acemoglu, Johnson and Robinson (p. 406) used a very effective visual aid to show that institutions and not culture of geography are the main or fundamental determinants of economic growth. A version of the graph using Maddison's data is shown below.
The graph does show that even though South and North Korea share the same culture and geographic conditions, they do have significantly different growth patterns after the 1970s, with GDP per capita in South Korea reaching more than US$20,000 by 2008, while North Korea never takes off, and after the collapse of the Soviet block reverts to the initial levels. This would suggest that institutions are central for growth.

There is the whole issue of which institutions are relevant, of course. Acemoglu et al. emphasize private property rights and the rule of law, which would allow entrepreneurs to invest. In their view, supply side factors are central. I would argue that demand forces are more relevant, and that symbiotic relation with US has played a role in South Korean success, in particular in lifting the balance of payments constraint that is the major hurdle for developing countries. At any rate, the figure below is meant to put the notion of South Korean success in perspective.
Note that both Koreas are unified in the graph (again using Maddison's data). Chile is a good comparison in Latin America in terms of GDP per capita. Yes Korea, both of them, were catching up in the 1950s and 60s, but from the mid-1980s onwards, all the growth of South Korea means that they keep the pace with Chile.

I am certainly not suggesting that the Chilean model, which relies on the export of commodities (fundamentally copper), which the neoliberals never privatized after Allende's nationalization by the way, and strict integration to world markets with Free Trade Agreements (FTA) with the US and everybody else, is a good strategy. Yet, the alternative of diving your country in two and becoming a satellite of the dominant hegemon at best makes you a middle income country. And of course is not open to all.

Comments

  1. For the most part, I would be willing to argue that the political geography of the Cold War explains the contours of the modern global economy. It explains who's rich and who's poor, as you've outlined above. It explains our production/consumer technologies and innovation, of which mostly all (from the microwave to the iPhone to container shipping supply-chain processes) are the result of Cold War military R&D efforts to beat the Reds. It explains the anti-labor policy stance of Western policy elites and the inability of labor to fight back, a legacy of Red Scare fears of a supposed fifth-column and the purge of radicals from unions. Hell, even the special relationship between China and the U.S. is best understood in historical terms: a result of the crumbling Sino-Soviet relations and Nixon/Kissinger seeing that as a geopolitical opportunity. Yada, yada, yada.

    I should really write a book about this. Dibs!

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  2. "I am certainly not suggesting that the Chilean model, which relies on the export of commodities (fundamentally copper), which the neoliberals never privatized after Allende's nationalization by the way, and strict integration to world markets with Free Trade Agreements (FTA) with the US and everybody else, is a good strategy. Yet, the alternative of diving your country in two and becoming a satellite of the dominant hegemon at best makes you a middle income country. And of course is not open to all."
    -First, South Korea and Chile are both high-income countries. Secondly, both Chile and Korea are wildly successful for their respective regions due to the strength of their free-market policies. Chile is the most first-world of Latin American countries and has been by far the fastest-growing economy in all Latin America and the Caribbean over the past 40 years. Korea's economy is fifteen times the size of what it was 40 years ago. I dare you to find a single non-natural-resource exporting country (other than Chinese-majority regions) which have done anything similar. Ever. Anywhere.

    I didn't realize just how similar the growth patterns of these two excellent economies have been since the 1980s. Thanks for informing me.

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