Monthly Archives: November 2014

Some Countries Just Can’t Catch a Break: A Review of the Theories

Life in Mogadishu

Life in Mogadishu, the capital city of Somalia (Photo credit: Sudarsan Raghavan / Washington Post)

In the last post, I explained the concept of “least developed countries” and discussed some of the characteristics shared by the 48 countries that bear the label. In this post, I’ll review a few different theories for why some countries are so much poorer than others.

In Why Nations Fail, Daron Acemoglu and James A Robinson, economists at MIT and Harvard, respectively, argue that the key to prosperity are strong institutions. This is a common refrain among a lot of economists, and certainly rings true in a lot of cases. Here at Develop Economies, your humble correspondent wholeheartedly subscribes to the premise, and has written about it extensively in the past. In a previous post titled “The Convergence: America’s Long Arc of Development”, I explain some of the same concepts and apply them to the example of the United States.  For a time, international organizations, like United Nations, the World Bank, and the IMF, and donor nations demanded reforms in governance in exchange for loans, aid, and other resources. According to the authors, stronger institutions enable countries to grow.

Specifically, economic institutions, like property rights, enforceable contracts, a functional legal system, and an overall business climate that promotes competition, create incentives for individuals to invest in the future. Conversely, economic institutions enrich a wealthy political elite at the expense of the masses. These weak economic institutions are ultimately a function of what the authors call “extractive” political institutions, which effectively rig the system in favor of the elite. Seeking onerous rents, they exploit the system to their benefit, leaving the nation paralyzed economically, with few prospects for growth. Inclusive political institutions, on the other hand, promote growth by creating the economic institutions that enable creative destruction, and, therefore, progress.

A helpful (or confusing) chart explaining the why nations fail

A helpful (or confusing) chart explaining the why nations fail

Acemoglu and Robinson focus on the political failings of LDCs as an explanation for their condition, and provide a lot of good examples of the theory in action. While most people agree that inclusive political institutions are key to a country’s success, many dispute the idea that they are elemental. What I mean by this is that strong institutions are a prerequisite for prosperity, but their absence is not the root cause of why some countries are so poor.

Rather, the physical attributes of a nation – its geography, climate, and soil content, and whether it has depleted its natural resources through deforestation and other environmental degradation – ultimately determine a country’s fate. This is an idea Jared Diamond lays out in Collapse: How Societies Choose to Succeed or Fail, and it stands in contrast to the theory of institutions put forward by Acemoglu and Robinson.

Unlike Acemoglu and Robinson, Diamond is scientist and historian famous for examining trends in human history through a lens of geography, science, and culture. While Collapse deals with the decline of once-great societies, his borderline deterministic view on what makes countries succeed or fail places much of the blame on environment rather than governance. In a review titled “What Makes Countries Rich or Poor?”, he delivers a rejoinder to the institutions theory, attributing success to location instead. While he acknowledges the importance of strong institutions, he is not convinced that they provide the whole story:

While institutions are undoubtedly part of the explanation, they leave much unexplained: some richer temperate countries are notorious for their histories of bad institutions (think of Algeria, Argentina, Egypt, and Libya), while some of the tropical countries (e.g., Costa Rica and Tanzania) have had relatively more honest governments. What are the economic disadvantages of a tropical location?

The answer, according to Diamond, is twofold: prevalence of disease and agricultural productivity. First, the tropics are notoriously unhealthy because, unlike in temperate climates, bacteria and parasites thrive year-round. In addition, they are far more numerous in the tropics, evolving at a faster pace without the threat of dying off in the winter. This public health challenge saps the productivity of people living in the tropics, hindering economic growth. Second, agricultural productivity in the tropics is lower for a variety of ecological and geological reasons, including glacier mass, energy content, soil fertility and more. If you are interested in learning more, read the review, because it is far too dry to talk about here.

A sampling of the poorest countries in Africa, with the least developed in red.

A sampling of the poorest countries in Africa, with the least developed in red.

Another unfortunate characteristic of many LDCs is lack of access to oceans. This is something I saw firsthand in East Africa, which is home to quite a few landlocked nations, like Uganda, Rwanda, and Burundi. Diamond explains the challenge for these countries:

It costs roughly seven times more to ship a ton of cargo by land than by sea. That puts landlocked countries at an economic disadvantage, and helps explain why landlocked Bolivia and semilandlocked Paraguay are the poorest countries of South America. It also helps explain why Africa, with no river navigable to the sea for hundreds of miles except the Nile, and with fifteen landlocked nations, is the poorest continent. Eleven of those fifteen landlocked African nations have average incomes of $600 or less; only two countries outside Africa (Afghanistan and Nepal, both also landlocked) are as poor.

So, rather than purely a failure of institutions, Diamond attributes perhaps 50% of the LDCs misfortune to something other than institutions – whether location, environmental degradation, or something else. The authors of Why Nations Fail disagree with his conclusion, and, if you are really into it, read Acemoglu and Robinson’s response to Diamond.

In the third and final book, The Bottom Billion, Paul Collier, a development economist at Oxford, puts forward another theory (or, more specifically, a suite of theories) explaining just why these countries are in such rough shape.  According to Collier, there are four key explanations for the state of the 60 poorest countries in the world (he adds a few more in addition to the LDCs), which are overlap with the institutional theory of Acemoglu/Robinson and environmental theory of Diamond:

  1. The conflict trap
  2. The natural resource trap
  3. Landlocked with bad neighbors
  4. Bad governance in a small country.

The conflict trap refers to civil wars and the political, economic, and social toll they take on countries. At a cost of $64 billion each, civil wars unwind any progress and plunge the countries back into misery. Think of Sierra Leone, Liberia, Rwanda, Somalia, Cambodia, Myanmar and others. What makes conflicts particularly pernicious is that, with every successive conflict, the likelihood of devolving back into civil war increases, continually threatening any progress going forward.

A child solider in the Congo in 2003.  A sad product of the conflict trap.  (Photo credit: Evelyn Hockstein)

A child solider in the Congo in 2003. A sad product of the conflict trap. (Photo credit: Evelyn Hockstein)

The natural resource trap, also known as the natural resource curse, explains why, somewhat paradoxically, natural resources can make ill-prepared countries worse off. Collier explains why this is the case:

  • Resources make conflict for the resources more likely.
  • Natural resources mean that a government does not have to tax its citizens. Consequently, the citizenry are less likely to demand financial accountability from the government.
  • The exploitation of valuable natural resources can result in Dutch disease, where a country’s other industries become less competitive as a result of currency valuation due to the revenue raised from the resource.[4]

I described the problem of being landlocked above, and, of course, Acemoglu and Robinson spend an entire book explaining by why bad governance is a real deal-killer for the LDCs.

Collier’s assessment takes elements of all the theories and mashes them up in to one big super-theory. The book was well-received by critics, in no small part to the fact that, unlike a lot of books about development economics, like Bill Easterly’s White Man’s Burden and Jeffrey Sachs’ The End of Poverty, he offers some feasible solutions to the problems. It is perhaps more centrist than the others, trying to find a middle ground Easterly’s bottom-up approach and Sachs’ top-down one. For a review of his policy prescriptions, you can check out this review from Michael A. Clemens in Foreign Affairs.

So, those are some of the many theories about why LDCs are so poor. But what does it all mean? Is there hope for these countries. According to Clemens in the same review, the answer is a quite pessimistic and very sad, “no.” In response to Jeffrey Sachs’ proposal for what he calls “clinical economics,” Clemens lays out some harsh realities:

The problem of the bottom billion, however, is not that they live in places where functioning modern economies have become sick and require a doctor. It is that they live in places where there have never been functioning modern economies. Development assistance began as an effort to rebuild Europe after war — indeed a case of helping a sick patient become healthy once again. In countries of the bottom billion, there are not and never have been preexisting healthy economies to which to return. There is, in the medical metaphor, simply no patient. As interesting and correct as it may be to list self-reinforcing “traps” that prevent an absent organism from existing, this exercise tells us nothing about how to fabricate the body from scratch.

Unfortunately, in the unforgiving realpolitik world of global development, realities are, more often than not, harsh. While I am not sure I share the fatalistic views of some, I agree with Clemens’ assertion that we will be unlikely to see any of the LDCs or other bottom billion countries graduate from their moribund status in our lifetime. This does not, of course, mean that we can’t do everything we can to help ease the suffering of those struggling to survive. But, regardless of the reasons for their misfortune, these countries have never quite caught a break, and, in all likelihood, never will.

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Why Do Some Countries Have It So Bad?


Open a newspaper today and you’ll be bombarded with a panoply of terrible news. Ebola is ravaging West Africa, with a projected 10,000 new cases per week and the possibility for 1.4 million people infected in Sierra Leone and Liberia alone. Two decades ago, those same countries were embroiled in one of the most horrific civil wars in modern history. A few thousand miles away, a possible genocide in the Central African Republic has been unfolding – largely unnoticed – since the end of 2013. Head south and you’ll find never-ending violence in the Democratic Republic of Congo that has claimed the lives of 5.4 million people since 1998. Outside Africa, uprising and rage are threatening to topple the government in Yemen, and Haiti struggles to recover from the earthquake that killed 160,000 people. The list goes on and on. Beyond the penchant for inflicting misery on the people who live in them, these countries share a common bond.

Among the 196 nations in the world, some countries, it seems, consistently draw the short straw. There is no shortage of colloquial terms for them – basketcases and failed states, to name a few – but the United Nations has a specific designation for countries that occupy the bottom of the human and socioeconomic development indices: the “least-developed countries”. Of the 48 countries to receive the ignominious distinction of being considered an LDC, only four have ever graduated to “developing country” status: Botswana, Cape Verde, Maldives, and, until 2014, Samoa. The LDCs have 880 million people, or 12% of the world’s population, yet they contribute 2% of its GDP and 1% of its global trade in goods. With so many people, the question is: why do these countries have it so bad?


The least developed countries in the world.

Before examining the underlying causes, let’s first define what it means to be a least-developed country. Here is the United Nations’ description of the attributes that warrant the distinction:

The Least Developed Countries represent the poorest and weakest segment of the international community. Their low level of socio-economic development is characterized by weak human and institutional capacities, low and unequally distributed income and scarcity of domestic financial resources. They often suffer from governance crisis, political instability and, in some cases, internal and external conflicts. Their largely agrarian economies are affected by a vicious cycle of low productivity and low investment. They rely on the export of few primary commodities as major source of export and fiscal earnings, which makes them highly vulnerable to external terms-of-trade shocks. Only a handful has been able to diversify into the manufacturing sector, though with a limited range of products in labour-intensive industries, i.e. textiles and clothing.

These constraints are responsible for insufficient domestic resource mobilization, low economic management capacity, weaknesses in programme design and implementation, chronic external deficits, high debt burdens and heavy dependence on external financing that have kept LDCs in a poverty trap.

There is a lot to unpack in that statement, but, suffice it to say, LDCs are in a tough spot. Most of the people are subsistence farmers, growing just enough for themselves and their families, and relying on nature for their livelihoods. More than 70% live in rural areas, compared with 55% for other developing countries. They struggle to get by and move from crisis to crisis with little opportunity to implement systemic changes and reforms that will break the cycle of poverty and stagnant growth. With much of the population growing just enough to feed their families, the people are one natural disaster, family illness, or armed conflict away from the edge. They are the proverbial sailors in the boat with a hole in the bottom, bailing out just enough water to keep them from sinking any further. Only these boats are trying to stay afloat amidst raging seas, and a big enough wave – in the form of an earthquake or cyclone, a planned genocide, or an ultra-deadly virus that kills more than 70% of people it infects – is enough to tip the boat and send the sailors overboard, reversing any progress they have made in the past.

The question is: why these particular 48 countries? Economists have different underlying causes, ranging from the strength of institutions to the physical attributes of the geography. In the next few posts, I’ll review at a high level three arguments from three different books: Why Nations Fail, by Daron Acemoglu and James A. Robinson, Collapse: How Nations Choose to Fail or Succeed by Jared Diamond, and The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, by Paul Collier. In the end, I’ll weigh in on the question myself and give my own opinion, though, as a mere dilettante in the field of development economics, your humble correspondent warns you in advance of the dangers of listening to him.

In the next post, I’ll cover some of the theories explaining why LDCs are so poor.

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