Arnold Kling  

Growth Wisdom from Charles Kenny

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First, on figuring out the causes of growth


A linear framework rules out the possibility that the effect of a change in the variable of interest may differ according to the initial level of that variable and that the effect of certain variables may depend on the levels of other variables –in short, it rules out the idea that context matters. And when you look at the data we have, it turns out that relationships are almost certainly non-linear or context-dependent. But we don't have enough data on global economic growth to fully account for all of the context-dependent relationships.

I tried to explain that in layman's terms in What Causes Prosperity?.

Next, on inequality and convergence.


Buffalo Country in South Dakota has a per capita income of $5,213. Marin County in California has a per capita income of about $44,962. This remaining income gap suggests a great deal about the potential impact of globalization on worldwide income disparities.

...Robert Barro and Xavier Sala-i-Martin estimate the rate of income
convergence between US states at about 2 percent per year between 1880-1998.

...If, tomorrow, we managed to pass a WTO deal that included open borders for goods, services, finance and labor, the intra-country regional results suggest that, optimistically in 100 year’s time, we should still expect the poorest countries to have far less than one tenth the income of the richest –considerably better than now, of course, but less –and less rapid-- than one might hope, surely.


Again, thanks to Tyler for the pointer.


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COMMENTS (3 to date)
stanfo writes:

The idea of convergence doesn't address why countries diverged in the first place. Also, Barro and Sala-i-martin's convergence may be just a characteristic of the data(unit root).

shayne writes:

Mr. Kenny has apparently done very superficial research. Buffalo County (not "Country" [sic], as misspelled above and in his paper) in South Dakota is centered on the Crow Creek (Sioux) Indian Reservation, and most all Indian reservations have high unemployment rates and depressed economies. While most Indian nations/tribes jealously guard their sovereignty and rights to self-determination, those rights are severely constrained due to treaty obligations and U.S. law dating back over 100 years.

Mr. Kenny - and other economists researching why some societies flourish while others languish - might do well to examine WHY Buffalo County has and retains its impoverished status. Examining Global history and institutions is one way. But researching the reservations, related treaty obligations and long-term economic implications provides a suitable basis for study in real time. I would suggest reviewing "Cobell v. Kempthorne, Norton, Babbit, et.al." and the "General Allotment Act of 1887" as a good starting point for understanding how some government institutions can cripple economic growth and opportunity for a society. Global trade is NOT the cause of economic inequality.

Jan writes:

Simeon Djankov at World Bank in his Doing Business study suggests that it is micro economic factors not maco that we should be paying attention to. His speech at Cato Institute is available at http://www.cato.org/event.php?eventid=2508

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