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Noah Smith writes a neat Development Economics column from San Francisco, CA. It is evidence-based, thoughtful and informative. Basically, he puts out short narratives on the growth economics within current events, in a variety of countries.
One recent Twitter thread of his was of immediate interest to me. I taught a Master’s Class in International Trade and Development at U.C. Santa Cruz in the middle 1990s.
What drew me to Noah’s latest efforts? He was able to summarize, for all of us, in one simple Our World in Data chart, eleven essential country stories in economic development, over the last 30 years. This is the time that passed since the middle 1990s, when I last inspected materials like this.
Image Source: World Bank
What I found fascinating? The countries that have risen, or stagnated, are not often widely discussed in this way, in more widely-read mainstream macroeconomics commentary.
So, I thought for this week’s feature, I would highlight his latest effort.
GDP per capita, measured in constant international U.S. dollars is what organized his focus.
Development economics is concerned about raising the average incomes in a population. How to get rich when you are poor, if you will. That makes the GDP per capita data a good proxy, tracking how much average incomes have risen inside a given country.
In the up-front chart Noah Smith put together, covering the last 30 years of time, since the end of Communism and the Fall of the Berlin Wall, we can see both success and stagnation, for the eleven very different world economies.
I list next where the best and the worst countries are. I rank-ordered, from highest GDP per capita, to the lowest. In short, from the now comparatively rich to the still poor.
4. Dominican Republic
What follows is a brief Noah Smith style summary, of what is going on with each of these countries’ economic growth stories, in order of success.
1. Poland is only about 3/4 as rich as South Korea, but its overall growth since 1991 has been about the same.
South Korea is the generally acknowledged champion of economic development, but more people should pay attention to Poland!
Image Source: World Bank
However, I also want to present two dissenters on Noah Smith’s positive conclusions on Poland.
Pawel Bukowski and Filip Novokmet, summarized their thoughts in a 2021 article they published in the Journal of Economic Growth:
“Rising income inequality in Poland has important political and social implications. It shows that the official numbers on the average GDP growth might have little in common with the actual lived experience of most people.
“Those ‘left behind’ are often missing from the public discourse, which further fuels the illusion of inclusive growth and limits the demand for social policies.
“As a result, inequality stands today at the heart of the democratic debate in Poland and worldwide, which is evident in the recent populist backlash in Poland and internationally.
“The issue of distribution of gains from economic growth has thus become crucial for sustaining the long-term development.”
2. Turkey has managed successful industrialization and steady growth for decades, but is now threatened by its leader's embrace of wacky macroeconomic theories.
And how did Turkey do it?
Going to the Observatory of Economic Complexity, we see that its exports are pretty diversified, but with the biggest share coming from manufactured goods, especially automotive: Cars 6.77%, Delivery Trucks 2.66%, Vehicle Parts 2.63.
And its customers are also pretty diversified, but with the rich countries of Europe buying the lion’s share: Germany 8.96%, U.K. 6.46%, Italy 5.41%, Iraq 5.45%, France 4.44%, Spain 4.39% and the Netherlands 3.0%.
So. At a glance, it looks like Turkey is following a pretty normal path of industrialization: Making a bunch of manufactured goods and selling them to nearby rich regions.
But there were always three flies in the ointment of Turkey’s long boom.
- The first was a reliance on external borrowing
- The second was political instability, ultimately leading to bad macroeconomic policy
- And the third was Erdogan’s bizarre love of low interest rates
3. Mexico is a high-middle-income country with a diversified, technologically sophisticated manufacturing-led export economy. But its growth is frustratingly slow, possibly because of endemic violence.
Slow growth from a relatively high starting point is a pretty common story in Latin America — Brazil, Colombia and Argentina all have growth paths pretty similar to Mexico’s.
But those South American countries have an excuse — they’re mainly natural resource exporters. Mexico’s top exports, on the other hand, are manufactured products, mostly electronics and vehicles.
Mexico has another huge advantage that its South American counterparts lack: close proximity to a major economic center. More than 75% of Mexico’s exports go to the U.S., its behemoth neighbor to the north.
Possible causes of slow growth here?
The most obvious hypothesis here is organized crime. Mexico’s drug cartels are among the world’s most powerful and deadly — the “drug war” between these groups is so intense that it is routinely classified alongside full-blown military conflicts like the wars in Syria and Yemen.
It’s estimated that since 2006, about 350,000-400,000 people have been killed by homicide in Mexico.
4. The Dominican Republic is the most impressive economy in all of Latin America and the Caribbean, heading for developed-country status with a highly diversified economy.
The countries of Haiti and the Dominican Republic (D.R.) together form the island of Hispaniola in the Caribbean. Haiti comprises roughly the western third of the island, while the D.R. makes up the eastern two-thirds.
The economic divergence between these two countries is one of the most remarkable in the world, perhaps surpassed only by North and South Korea. As recently as 1960, the two countries had similar standards of living.
Today, the D.R., by some measures, is eight times as rich as Haiti, while Haiti’s standard of living hasn’t advanced at all since 1950.
The D.R. has already surpassed Brazil and Colombia; if Covid doesn’t knock it off its growth trend, it’ll soon pass Mexico and Argentina.
What explains this incredible divergence?
The short answer is that no one exactly knows for sure; the causes of economic development are complex, and there are lots of big theories with very little empirical proof.
5. Ukraine has struggled to grow since overthrowing communism. In the years before the war its economy was corrupt and dysfunctional. Then Putin struck, basically killing hopes of revived growth.
But if Ukraine can eject Putin’s armies, its future looks brighter. Corruption will likely be significantly reduced, and EU integration will help the country rebuild. The successful model here is Poland, which is now almost a rich country.
If we look at Ukraine, and we see that it mostly exports very basic, simple, low-value stuff — food, metals and minerals: Corn 9.64%, Wheat 6.27%, Rapeseed 2.76%, Soybeans 2.12%. Seed Oil 7.57%. Then, Iron Ore 6.79%, Semi-finished Iron 5.16%, Hot-rolled Iron 4.17%.
Manufacturing itself comprises a lower percent of GDP in Ukraine (10%) than in Poland, Romania, and Turkey (16-19%).
It’s clear that Ukraine missed a key opportunity here.
6. Indonesia managed a smooth transition from industrialization to resource-based development, and is now transitioning back to industry.
With 274 million people, Indonesia is the fourth largest country on Earth (the U.S. is third at 330 million). And this enormous population is made up of an absolutely dizzying array of ethnic groups — 1340, by the official count.
European empires often created “artificial” states by lumping a bunch of ethnic groups together within fairly arbitrary borders, and this practice tended to lead to a bunch of ethnic conflict that made it hard for these countries to grow (at least, for a while). Indonesia somewhat fits this bill — much of it used to be part of various Javanese empires (Java being the most populous island in the archipelago), but the modern state is a creation of Dutch colonialists.
As one might expect from this history, the country has often been riven by ethnic conflict, and there’s still some of this today. The most severe right now is the Papua Conflict, a low-level civil war between the government and a separatist movement.
When we look at Indonesia, it basically looks like a natural resource exporter:
The top exports involve a lot of chopping down trees and digging up rocks.
But what’s especially interesting about Indonesia is that it wasn’t always this way.
Go back to 2003, and while fossil fuels still take the top spot, electronics and clothing are numbers 2 and 3.
Logging and mining industries, the biggest in 2020, were way down the list in 2003.
Thus, over the past two decades, Indonesia seems to have undergone a process of deindustrialization. And when we look at manufacturing as a percentage of overall GDP, this is confirmed.
How can we explain its success, despite this?
Well, one potential answer is urbanization. While Indonesians’ movement into cities did slow a little bit after the turn of the century, it kept going at a decent rate.
Another possible answer is regional agglomeration — essentially every country in the region has experienced smooth growth over the last two decades, despite big differences in industries and development models:
7. Natural resource endowments have trapped Jamaica at a somewhat low-income level. The country needs to follow the Dominican Republic’s example and pursue industrialization.
8. Philippines is growing solidly and steadily, taking advantage of regional growth effects that are boosting all of Southeast Asia. Hopefully its new president will focus on the economy and avoid the corruption of his dad.
9. Bangladesh is growing rapidly and smoothly on the back of its world-beating garment industry. But it needs to diversify, and climate change is a looming threat.
Bangladeshi GDP growth is accelerating, from around +5% in previous years to +7% in 2019.
India has outgrown Bangladesh overall since 1980, but its growth has been less even, and looks to be hitting a serious slump in recent years. Pakistan is mostly stagnant, languishing in poverty (I’ll write a post about Pakistan’s dysfunction later). But Bangladesh has that smooth, even curve.
How is Bangladesh managing this feat? Did it manage to create a new type of development model based on services?
In fact, it’s doing the very same thing that Britain did when it became the first country to industrialize, over two centuries ago. It’s making and selling a bunch of clothes.
Bangladesh has become known as a hub of the world’s garment industry.
10. Pakistan is an absolute basket case -- a low-income consumption society, refusing to invest for its future, sustaining its people at the edge of subsistence with a constant influx of foreign loans.
11. Haiti, the neighbor of the Dominican Republic, which is #4 on this list of wealth-building nations, is desperately poor and stagnant.
To close matters up--
If you told me 30 years ago, to look into Poland, Turkey, Mexico, the Dominican Republic, Ukraine, and Indonesia, for macro growth success stories, it would have made my head spin.
The NAFTA trade pact would have added Mexico to my list.
But the Dominican Republic? Forget it.
East European integration towards the industrial juggernaut of Germany would highlight Poland.
But Turkey and Ukraine? That required more imagination.
Finally, I would have accepted Southeast Asian countries, where the “Asian Tigers” were growing GDP growth rates strongly in the 1990s, would be on the top list 30 years later on.
But now, I would have to acknowledge. A broad regional growth force was also going to lift all the countries in that region, including relatively more poorly-run ones like Indonesia.
This short history shows you a more eclectic truth. The varied country-level results really weren’t as tidy as the broad “Wealth of Nations” theories made it out to be.
A geographic location — near existing wealth and production — matters a lot.
Trade rules and exporting are key.
Internal politics matter some. Government choices matter some, too.
At the least, writing to ambitious governments out there: Don’t screw up the exporting!