Tuesday, May 14, 2013

Culture and Economic Development Predictions

Scott Sumner has some interesting thoughts on culture's role in economic development:
Take two very poor countries, North Korea and Pakistan.  Then ask which one is likelier to be rich in 50 years time?  I’d say North Korea, and if you hooked Smith up to a lie detector, I imagine he’d do the same.  But why? 
For me the answer would be culture, culture, culture.  But not culture in the sense that ignorant people use the term “culture.”  Rather culture as a sort of residual... Suppose it were the case that both Koreas were currently desperately poor, and India and Bangladesh were rich, while Pakistan was poor.  In that case I’d predict Pakistan would do much better over time, even though nothing changed in the personal characteristics of the people I happen to have met who were Korean or South Asian.  One notices cultural patterns in development, but that doesn’t mean one knows which particular cultural characteristics explain those patterns.
I thought this was worth exploring.  To take it another step, I wondered which countries one might expect to be the next development success stories based on cultural factors.

My winners:

Vietnam - They are starting from a low base -- GDP per capita of $3,412, lower than India or Nicaragua.  I've read several reports in recent months about how Vietnam has been snapping up job low-wage jobs from places like China and Singapore.  Culturally, it is considered part of East Asia, with Wikipedia citing "the long-term Chinese influence on its civilization, in terms of politics, government and Confucian social and moral ethics."  It borders China, and unlike, say, Kyrgyzstan or Mongolia, it borders a part of China that is developing.  It has strong literacy rates and school enrollment rates (better school enrollment than China).

Colombia - South America, as a continent, has been doing quite well in recent years, and the cultural argument supports the idea that this will continue.  The tricky part is choosing just one country.  Argentina and Uruguay are culturally most similar to Europe (97% of Argentina's population is of at least partial European descent), but Argentina is suffering from a run of terrible governance and Uruguay is tiny.  Chile has already developed, so we can't choose them.  Venezuela and Colombia have similar cultural makeups with 20% of the population of European ancestry and most of the rest having some sort of mixed European, American Indian and African background.  Venezuela has unfortunately also suffered from terrible governance in recent years, while Colombia has enjoyed more than a decade of solid governance now.  They recently concluded a free trade agreement with the U.S. and security has greatly improved over the past decade.  The security situation is still dicey, but if President Santos can negotiate a peace deal with the FARC, that will put them in terrific position to see great improvements going forward.  If not, there will be less optimism going forward.

Obviously, Central Europe and Russia also have a good claims under the cultural argument, although they're already relatively far along the development spectrum.

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