Bryan Caplan  

Homage to Catalonia, II

Homage to Catalonia... Used Furniture...

I've long been suspicious of international comparisons that weight all nations equally. When someone says "Former British colonies do better than former French colonies," my reaction is "Yes, but India did badly for decades, and it's probably got more people than all other British and French colonies put together." Now Sala-i-Martin has a fascinating article that shows that - in at least one important case - my objection matters. If you count all countries equally, growth rates have diverged, and inequality has increased. But if you weight the data by population, growth rates have converged, and inequality has decreased:

[T]he few countries in Asia that have converged to income levels of the OECD are large and populous, while many of the countries that have diverged (chiefly African countries) are not. Since the total population of the 41 African nations is about half of that of China or India and only twice the population of Indonesia, the results where each country is one observation (and therefore Africa gets 41 times the weight of China) are completely different from those where each citizen is one observation (where Africa gets about half the weight of China).

(Confused? Check out the elegant graphs on page 42).

The bottom line is that if you care about the well-being of human beings rater than countries, average living standards have gone way up and inequality has decreased:

We report eight measures of global income inequality. All of them deliver the same picture: after remaining constant during the 1970s, inequality declined substantially during the last two decades. The main reason is that incomes of some of the poorest and most populated countries in the World (most notably China and India, but also many other countries in Asia) rapidly converged to the incomes of OECD citizens. This force has been larger than the divergence effect caused by the dismal performance of African countries.

At this point, you could reasonably ask: "Why are you happy about lower inequality, Bryan? Haven't you argued that abler people deserve more?" Indeed I have. But unlike income differences within countries, income differences between countries are not primarily based on differences in individual merit. Compared to other Americans, successful Americans usually have a lot more talent and a much better work ethic. But does the average American have a lot more talent and a much better work ethic than, say, the average Chinese? I think not.

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The author at The Filter^ in a related article titled In defense of methodological individualism writes:
    One of the underlying reasons why some economist's disagree with others is a central methodological premise. Austrian's (and free-marketeers more generally) believe in methodological individualism - i.e. that the unit of analysis should be the individu... [Tracked on August 24, 2006 8:34 AM]
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Lancelot Finn writes:

If you look at the last three years, I'll bet that the global trend is towards convergence even if you take China and India out of the equation. See my article: "The World Economy is Booming."

Barkley Rosser writes:

Well, regarding the Pleasant Valley photo, it is perfectly possible for three directions out of an intersection to end up at the same location, although probably arriving at it from three different directions.

Liked the article also!
But two points:
The advantage a large country may have in the economy of scale of the government. Every country has the same needs (ie taxing, monetary policy, printing currency) but have less of a strain the larger the country is.
Secondly could this not be because of increased levels of trade within countries? I always remember one of my earlier economist teachers talking about how the US had a large area as well as a diverse population to trade among. For example the EU was created to set up a similar situation.

Bruce Charlton writes:

I certainly agree that the really 'good news' about the recent reduction in world poverty requires much wider circulation - most people (at least the 'liberal elites') seem to believe the opposite.

Also, it emphasizes that the standard modernization methods adopted by China and India seem to work, whereas in Africa the more socialistic approach - Fair Trade, community development, and all the rest - seems to be ineffective. Of course there are cultural differences, but still...

However, when looking at questions such as whether former British colonies did better than other nations, there is a reasonable case for counting each political entity as a unit.

wrt India, I read somewhere that in c1950 everyone expected India to be a big economic success but that democracy would not survive - however the opposite happened. Maybe India's British political and administrative legacy helped preserve the democracy, even as the mid-twentieth-century socialistic aspect of British influence crippled its economy.

Mr. Econotarian writes:

India and China have shown that key elements of governance organization are irrelevant to the economy.

India had democracy for a long time before it enacted anti-socialist economic reforms and began rapid growth.

China had a dictatorship under which it starved tens of millions to death, but today the same central governing structure has unleashed massive economic growth.

TGGP writes:

The estimate in "IQ and Wealth of Nations" was that a bit more than half the the variance in growth between countries can be attributed to the different governments and a bit less than half is due to the different people in countries.

I might have mentioned this before, but you guys have to watch this Gapminder video. It's pretty long but very good.

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