Pelajari tentang The Development Gap

(1)

1

The Development Gap

Students who are interested in studying development economics may have var- ious motivations for doing so. They might have idealistic motivations and want to help eradicate poverty and disease in poor countries. They may intend to work for a non-governmental organization (NGO) or an international development aid agency to achieve these goals. Better knowledge of development economics can provide more useful solutions to help the poor in developing economies. Students might also have intellectual motivations and want to understand why poverty can be so persis- tent and how development economics can contribute to finding solutions to poverty.

Why can our planet produce enough food to feed all its inhabitants, yet hundreds of millions of people still suffer from hunger? Which economic policies work best, at the regional, national, urban, and village levels, to help people escape poverty, achieve higher living standards, receive better health care and education, and live longer?

How can development economics provide answers to those questions?

There is no better way to introduce the topic of economic development than with some striking pictures. Figures 1.1a, 1.1b, and 1.1c show three different world maps produced by Mark Newman, at the Department of Physics and the Center for the Study of Complex Systems at the University of Michigan. The first map displays the landmass of the world’s countries. The second map represents the size of countries as proportional to their population; for example, China and India appear much larger than on standard maps since they have populations, respectively, of 1.3 and 1.2 billion people. Japan and Indonesia also appear larger. Notice how Russia and Canada appear much smaller than on standard maps. On the African continent, South Africa, Nigeria, Egypt, and Ethiopia appear larger, while on the North American continent, Mexico also appears larger.

In the third map, the size of a country appears as proportional to its gross domestic product. Here, the United States, Europe, and Japan appear very large, and Ger- many appears nearly as large as China. Notice how Central and South America and Africa have become tiny.

These three maps clearly illustrate the challenges of economic development in the world. The overwhelming majority of the world’s population lives in developing countries, while most economic activity takes place in a few rich countries such as the United States, Japan, or the nations of Western Europe. Most people on the planet still have very low living standards and roughly one billion people live in conditions of great poverty, surviving on less than a dollar a day. The study of economics should not, therefore, view the issues of economic development as a marginal or exotic subject. It is the most important economic problem on our planet and development economics thus has the potential to make a significant positive impact on the lives of people around the world.

(2)

FiguRE 1.1a The Actual Land Mass of the World’s Countries

FiguRE 1.1b A World Map Representing a Country’s Size as Proportional to Its Population

(3)

I

n this chapter, we examine some of the most important facts about economic development and consider some of the main questions studied in development economics. We first learn about the development gap, the differences in economic development between the advanced economies of the United States, Japan, and the Western European nations and the poorer economies of Africa, Asia, Latin America, and Eastern Europe. We review measures of the development gap in terms of income, life expectancy, health, education, and level of urbanization, which will provide a fresh and precise perspective on the scope of the development gap between the richest and poorest countries in the world.

This gap has been evolving over time, decreasing for some countries while increasing for others. For example, in recent decades some Asian countries such as China and India have successfully undertaken a vigorous process of development and have begun to close the gap with the richest countries.

Obviously there is still a long way to go, but it is encouraging to see that there are some major success stories in developing nations, and they may help us better understand why the development gap has unfortunately increased in many other poor countries. Another important fact we must consider is that development is not irreversible: rich countries can be engaged in a process of FiguRE 1.1c A World Map Representing a Country’s Size as Proportional to Its Gross Domestic Product

In the first map, country sizes are proportional to their landmass; in the second map, they are proportional to their populations; and in the third map, they are proportional to their gross domestic product.

Source: Printed with permission from Mark Newman, University of Michigan. http://www-personal.umich.edu/~mejn/

cartograms/.

(4)

economic decline. Argentina was among the richest countries in the world at the beginning of the 20th century, but over the next 50 years, it experienced a significant downturn in its economy. Development economists have primarily focused on the success or failure of development in poor countries; they have paid less attention to the phenomenon of the decline of countries who had already achieved success in economic development. It is critical to understand economic decline in order to prevent it.

Facts about the Development gap

There are different ways to measure the gap in economic development between rich and poor countries. We will look at the income gap, the health gap, the education gap, and the differences in rates of urbanization across the world.

The income gap

The first and most obvious way to measure the development gap is to measure the income gap between developed economies and poor countries.

A common measure of income is gross domestic product (GDP) per capita.

This is a measure of the value of output produced per inhabitant of a country during a given year. Gross domestic product per capita is a good approxima- tion of average annual per capita income. The only difference is that annual per capita income adjusts for income flowing into or out of the country, as well as for foreign aid and remittances. Of course, these can be significant for poor countries. Nevertheless, GDP is the single most widely used measure of a country’s economic size. In order to compare across countries, we need to express GDP per capita in U.S. dollars (or some other common currency). In development economics, it is important to use exchange rates based on purchasing power parity (PPP) when converting GDP per capita in the local currency to U.S. dollars. Purchasing power parity exchange rates are based on the prices of all goods and services, and are constructed such that the same basket of goods in one country has the same dollar value in all countries.

Let us look at GDP per capita across countries in 2010 using purchasing power parity. Luxemburg is the richest country in the world with a GDP per capita of $86,000. The world’s poorest country is the Democratic Republic of Congo (formerly called Zaire) with a GDP per capita of only $350. This is a very large difference, close to 1:250. Other rich countries include the United States, Norway, Singapore, Qatar, and the United Arab Emirates with a gross domestic product (GDP) per capita around $50,000. Most European countries have a GDP per capita between $20,000 and $40,000. In contrast, 12 countries, including Congo have a GDP per capita lower than $1,000. These include Burundi, Liberia, Eritrea, Niger, the Central African Republic, Sierra Leone, Malawi, Timor-Leste, Mozambique, Madagascar, and Togo. Apart from Timor-Leste in Southeast Asia, all of these countries are in sub-Saharan Africa. Figure 1.2 shows a map of GDP per capita based on purchasing power parity.

(5)

As we can see from Figure 1.2, most of the world’s poorest countries are in Africa. South Africa is the richest country on the continent with slightly over

$10,500 per capita. However, most countries in sub-Saharan Africa are much poorer and have a GDP per capita that is closer to the $1,000 range. Many Asian countries are still very poor; Nepal and Afghanistan have a GDP per capita of roughly $1,200 Bangladesh and Myanmar are below $2,000, and Cambodia, Laos, Pakistan, Vietnam, India, the Philippines, Mongolia, and Indonesia are below $5,000.

Russia and the nations of Latin America and Eastern Europe are among the middle-income countries with a GDP per capita in the range of $5,000 to $15,000. Brazil, for example, has a GDP per capita slightly above $11,000, which is around the Latin American average. Some of the former Soviet republics are quite poor. Tajikistan and Kyrgyzstan have a GDP per capita close to

$2,000, roughly the level of Cambodia. Uzbekistan and Moldova have a GDP per capita slightly above $3,000 and are poorer than Vietnam or India. Dur- ing the Communist period of the 20th century, we would not have classified Soviet republics as developing countries. However, since the fall of Commu- nism, it is clear that many former Soviet republics are actually quite poor. Even

Using PPP to measure a country’s GDP (or any other statistical data) means that we must use an exchange rate based on purchasing power parity instead of the market exchange rate to obtain a dollar measure of GDP for that country. The purchasing power parity measure computes exchange rates between currencies of different countries so that the same basket of goods in any two different countries has the same dollar value. This is difficult to do but is important for making international income comparisons. One dollar will typically buy less in a rich country than in a poor country if we use existing exchange rates. For example, one U.S. dollar was exchanged internationally in 2012 at roughly 55 Indian rupees.

However, 55 Indian rupees will typically buy more things in India than will one U.S. dollar in the United States. The purchasing power parity exchange rate will thus be lower than 55 rupees per dollar, probably closer to 40 rupees or even less. The world’s poorest people live on less than

one dollar a day. Even though they live under conditions of extreme poverty, they can typically buy more with one dollar in their country than a resident of New York, Tokyo, or London can purchase with that same dollar.

The reason why market exchange rates do not equalize purchasing power parity is that exchange rates are based only on the prices of tradable goods and do not take into account non- tradables, i.e., goods and services that are not traded internationally. Non-tradable goods are usually less expensive in poorer countries. Many of these non-tradable goods are services and their price is related to the cost of labor, which is lower in poorer countries. For example, the price of a haircut is usually lower in poorer countries. The technology for cutting hair is basically the same everywhere and the cost is essentially the wage of the hairdressers. A haircut is a non-tradable service because people do not typically travel across countries to get a cheaper haircut.

Comparing Per Capita incomes across Countries using

Purchasing Power Parity (PPP) Exchange Rates

(6)

Russia must now be seen as a middle-income country with a GDP per capita of $19,000, which is closer to that of Mexico ($14,500) than to that of the United States ($47,000).

The Poverty gap

The income gap shows that an overwhelming proportion of the world population lives on less than $10,000 a year. However, this measure does not give an accurate idea of the extreme poverty that exists in the world. Figure 1.3 shows the poverty headcount ratio at $2 a day measured in purchasing power parity. This represents the percentage of the population that lives on less than $2 a day and it is a measure used by the World Bank to gauge extreme poverty.

We will talk more about measurement of poverty in Chapter 2. As Figure 1.3 demonstrates, slightly over 70% of the population in South Asia (Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka) fits that definition of poverty, while nearly 70% of the population in sub-Saharan Africa lives below that poverty line. As a result, those two regions represent a strong concentration of extreme poverty, with 1.2 billion people in South Asia and 600 million people in sub-Saharan Africa living on less than $2 a day. In East Asia and the Pacific, 33% of the population, or roughly 730 million people, live below that poverty line. Overall, a bit less than half of the human beings on the planet live on less than $2 a day.

Measures of income and poverty are crucial indicators of development, but they are not the only ones. We will next look at other factors that can give us an idea of economic development and living conditions.

FiguRE 1.2 GDP Per Capita in 2010 (Purchasing Power Parity in Dollars)

GDP per capita, PPP (current international $) 2010

The World Bank 26,152 11,748 to 26,152 4,900 to 11,748 2,061 to 4,900 2,061 no data

The world’s poorest countries are concentrated in Africa.

Source: The World Bank, World Development Indicators, http://databank.worldbank.org.

(7)

The Health gap

There is an important health gap between rich and poor countries. People in developing countries are more prone to diseases, they do not live as long as people in developed countries, and many of their children die at a young age.

Differences in life expectancy. In 2010, a child born in Japan could expect to live until 83, while a child born the same year in Sierra Leone in Africa could only expect to reach the age of 47. Life expectancy is defined as the average number of years a newborn infant would live if health and living conditions at the time of its birth remained the same throughout its life. It reflects the health conditions in a country and the quality of health care its people receive.

Life expectancy is closely correlated with income, but it is instructive to look at the numbers on life expectancy in different regions of the world shown in Table 1.1. For each region that includes developing countries, the table identi- fies the countries with the lowest and the highest life expectancies. Life expectancy in North America is given for comparison.

As the table indicates, life expectancy is the lowest in sub-Saharan Africa by more than 10 years compared to South Asia, and by more than 20 years compared with other regions in the world. All countries outside sub-Saharan Africa have a life expectancy above 50, except for Afghanistan, but 11 African countries have a life expectancy below 50. As we will see in Chapter 16, AIDS is a big factor in reducing life expectancy in many African countries, but it is FiguRE 1.3 Poverty Headcount Ratio in 2008 at Poverty Line of $2 a Day in 2005 Prices (Purchasing Power Parity)

80 70 60 50 40 30 20 10 0

East Asia

& Pacific

Percentage below the poverty line

Eastern Europe &

Central Asia

Latin America &

Caribbean

Middle East &

North Africa

South

Asia Sub-Saharan Africa

More than two-thirds of the population in sub-Saharan Africa and in South Asia live on $2 a day.

Source: The World Bank, World Development Indicators, http://databank.worldbank.org/.

(8)

not by any means the only factor contributing to a low life expectancy. Many mothers die giving birth, diseases such as yellow fever and tuberculosis are often fatal, and parasitic diseases and malnutrition make people more vulner- able to illness, leading to an early death.

Outside Africa, other countries with a low life expectancy are Haiti (61.8), Timor-Leste (62), Papua New Guinea (62.4), Cambodia (62.5), Myanmar (64.6), India (65.1), and Pakistan (65.2). Conversely, there are some rather poor countries where life expectancy is quite high. For example, life expectancy in Cuba (79) is higher than in Chile (78.9) and, for that matter, higher than any other country in Central or Latin America. As a comparison, life expectancy in the United States (78.2) is lower than in Cuba or Chile. In China, life expectancy is 73.3 years. Countries from the former Soviet Union have a relatively low life expectancy; Russia’s is 68.8, which is lower than Indonesia (68.9). Turk- menistan has a life expectancy of only 64.9, which is below India or Pakistan.

Kazakhstan has a life expectancy of 68.3, which is lower than Nepal (68.4) or the Philippines (68.5).

Differences in infant mortality rates. The infant mortality rate measures the probability that a child will die before reaching age 1. It is computed as the number of children dying before age 1 per 1,000 live births in the same year. One has to divide this rate by 10 to compute the probability of dying before age 1.

As Figure 1.4 shows, infant mortality rates are the highest in sub-Saharan Africa and South Asia, the regions in the world where there are also the highest poverty rates. For the sake of comparison, the figure shows infant mortality rates for high income countries that are members of the Organization for Eco- nomic Co-operation and Development (OECD).

Region, country Life expectancy Region, country Life expectancy

Sub-Saharan Africa 54.2 East Asia and Pacific 73.3

Lesotho 47.3 Timor-Leste 62

Cape Verde 73.77 Japan 83

South Asia 65.3 Latin America and Caribbean 74.1

Afghanistan 48.3 Haiti 61.8

Sri Lanka 74.7 Costa Rica 79.2

Middle East and North Africa 72.5 Europe and Central Asia 75.7

Iraq 68.5 Turkmenistan 64.9

Qatar 78.1 Switzerland 82.2

North America 78

There are marked differences in life expectancy across the world. It is the lowest in sub-Saharan Africa where poverty is the highest.

TAbLE 1.1 2010 Life Expectancy (Years) at Birth in Regions of the World and in Selected Countries

(9)

In Africa, Sierra Leone has an infant mortality rate of 134 per 1,000, Congo has 112, Somalia 108, and the Central African Republic has 106. These are the four countries with the highest infant mortality rates in the world. The 20 countries with the highest infant mortality rates are all in Africa, except for Afghanistan (103). Haiti has a mortality rate of 70.4 per thousand, Pakistan 69.7, Tajikistan 52.2, and Myanmar 50.4. Behind all these numbers are human dramas. Every year, 9 million children die before they have reached the age of 5, leaving grief- stricken families. Most of these unnecessary deaths could be avoided by reducing poverty and improving health care in these developing nations.

Some developing countries have low infant mortality rates demonstrating that health care policies can make a difference. Cuba has an infant mortality rate of only 4.6 per thousand, the same rate as the United Kingdom and a lower rate than the United States (6.5). Korea (4.2), Malaysia (5.6), Montenegro (7.2), Chile (7.7), Russia (9.1), Uruguay (9.2), and Thailand (11.2) are some of the other countries with low infant mortality rates.

Policy interventions can be quite effective in reducing child mortality.

Between 2005 and 2010, Kenya reduced its infant mortality rate by 8% each year, perhaps the fastest reduction observed among developing countries. A key factor seems to be a policy that encourages the spread of insecticide-treated bed nets as a way to fight malaria, one of the main causes of infant mortality in tropical and sub-tropical areas. In 2003, only 8% of Kenyan households used such bed nets, but by 2008, treated bed nets were used by more than 60% of households.

FiguRE 1.4 Infant Mortality Rates in 2010 (Per 1,000 Live Births)

income:High OECD

Eastern Europe &

Central Asia

Latin America &

Caribbean

Asia &East Pacific

Middle East &

North Africa South

Asia Sub-Saharan Africa 90

80 70 60 50 40 30 20 10 Deaths before age 1 per 1,000 live births in 2010 0

Infant mortality rates are measured as the number of deaths before age 1 per 1,000 live births.

(10)

The Education gap

Access to education is another factor affecting the development gap. Countries that invest in good education can realize high productivity gains and economic growth. Unfortunately, poor countries often cannot afford a good education system, a deficit that contributes to the perpetuation of the development gap.

Important progress has been made in the last decades to introduce universal access to primary school, but in poorer countries, many children still do not have access to secondary education. Figure 1.5 gives 2009 figures for enrollment in secondary school in the principal regions of the world.

Secondary school enrollment rates are measured by dividing the number of pupils enrolled in secondary school, regardless of age, by the population in the theoretical age group for secondary education. This measure, given as a percentage, is called the gross secondary school enrollment rate. Gross enrollment rates can sometimes be above 100% when there are children enrolled who are above and/or below the theoretical age. The United Kingdom, for example, has a secondary school enrollment rate of 178% and Belgium has a rate of 160%.

School enrollment rates are closely correlated with GDP per capita. As Fig- ure 1.5 shows, sub-Saharan Africa and South Asia, the world’s poorest regions, have substantially lower secondary school enrollment rates than other developing regions in the world.

African countries have the lowest secondary school enrollment rates. Niger has only 12%, the Central African Republic 14%, and Burkina Faso 19%. Twelve FiguRE 1.5 Gross Secondary School Enrollment in 2009, by Region

0 20 40 60 80 100 120

Sub-Saharan Africa Gross secondary school enrollment (percentage)

Middle East &

North Africa

East Asia

&

Pacific

Latin America &

Caribbean

Eastern Europe &

Central Asia

income:High OECD South

Asia

Large differences in secondary school enrollment rates still exist across the world. In most regions, gross school enrollment rates are above 75%. They are nevertheless below 40% in sub-Saharan Africa and below 60% in South Asia.

(11)

African countries have secondary enrollment rates below 30%. Pakistan has the lowest enrollment rate outside Africa with 33.6%. In comparison, Bangladesh has 49% and India has 60%. Other countries in Asia having low enrollment rates are Cambodia (45%), Myanmar (53%), Timor-Leste (58%), and Bhutan (60.8%).

In contrast, China has an enrollment rate of 80%. In Latin America, El Salvador (63%) has the lowest enrollment rate followed by Paraguay (67%). Costa Rica, Colombia, Peru, Uruguay, and several Caribbean island nations have rates above 90%. In sub-Saharan Africa, the countries with the best enrollment rates are South Africa (93%), Cape Verde (85%), and Botswana (80%). Clearly there is consider- able variation in school enrollment across continents and even across countries.

A big success story in education is South Korea, a nation that used to be very poor. In the 1960s, its income level was comparable to Afghanistan, but it currently has a GDP per capita comparable to Israel or New Zealand.

In a few years, it could even catch up with Japan. The South Korean education system is an even bigger success story, excelling beyond those in some of the most advanced economies and it is certainly an important factor behind South Korea’s economic success. South Korea now tops all other countries in the world in terms of the proportion of young people who have completed secondary school. Currently, 97% of South Koreans between the ages of 25 and 34 have achieved secondary education. This is better than Norway and Japan, where slightly more than 90% have achieved that goal. South Korea is among the top countries in the world in terms of the proportion of young people enter- ing university. In an international comparison of math skills, Korean teenagers placed second behind Finland. South Korea has not only consistently invested in education, but it has also managed its education system quite efficiently.

The urbanization gap

Rich countries are typically very urbanized. The Industrial Revolution developed in cities as workers came from the countryside to the city to earn a better living in factories rather than continue to toil on the land. Even today, the large service sector in rich countries is primarily located in cities. Typically, we tend to think of poorer countries as having a low level of urbanization and a larger share of the population that still lives in rural areas and works on the land. As we will see below, this situation is changing.

Figure 1.6 provides an overview of urbanization rates worldwide. These rates measure the proportion of a country’s population living in urban areas as opposed to rural areas. Many small countries are strongly urbanized, but even large countries like the United States and Canada, with great expanses of land, have high urbanization rates, even into the 80% range.

Africa is the continent with the lowest level of urbanization. Burundi, Uganda, Niger, Ethiopia, and Rwanda have urbanization rates below 20%.

However, some African countries are highly urbanized; for example, Djibouti and Gabon have urbanization rates close to 90%. Libya has an urbanization rate of 78%, while Liberia, Cape Verde, Botswana, South Africa, the Republic of Congo, Angola, Cameroon, Gambia, Ghana, Cote d’Ivoire, and Nigeria have urbanization rates above 50%.

In Asia, the least urbanized countries are Nepal (18.2%), Cambodia (22.8%), Afghanistan (24.8%), Bangladesh (28.1%), and Vietnam (28.8%). India has an

(12)

urbanization rate of 30.1% and China’s rate is 44.9%. Many Asian countries have become highly urbanized; for example, South Korea has an urbanization rate of 81%, higher than Japan’s (67%).

In Latin America, Guyana is the least urbanized country, but it still has an urbanization rate of 28.5%. Many Latin American countries have very high urbanization rates, with Venezuela at 93%, Uruguay 92.5%, Argentina 92.4%, Chile 89%, Brazil 86.5%, and Mexico 77.8%.

These rates clearly demonstrate that the planet is becoming more and more urbanized. Since 2010, more than half of the world’s population lives in urban areas. Worldwide, a majority of countries now have urbanization rates over 50%, with all rates increasing rapidly.

In contrast to historic trends, current higher levels of urbanization are not necessarily equivalent to higher levels of income as many migrants now move from the countryside to live in urban slums under conditions of extreme poverty with no basic infrastructure such as water, gas, electricity, transportation, and sewage systems. Today, developing countries have some of the largest cities in the world. Mexico City has nearly 23 million inhabitants; Sao Paulo (Bra- zil) and Mumbai and New Delhi (India) have around 20 million inhabitants;

Shanghai (China) has 18 million; Jakarta (Indonesia) has over 16.5 million; Kol- kata (India) and Cairo (Egypt) have close to 16 million; and these numbers keep going up. Out of the 20 largest cities in the world, only three are in advanced industrialized countries (Tokyo, New York, and Los Angeles).

These high urbanization rates in the developing world mean that when we consider policies to alleviate poverty, we should think of both rural and urban FiguRE 1.6 World Urbanization Rates, 2010

Legend Less than 34 34–50 50–66 66–78 78 or more No data Time: 2010

Series: Urban population (% of total population)

While urbanization rates are lower in Africa and in South Asia, large portions of the world have rates above 50%.

(13)

areas. How can we bring decent housing, basic infrastructure, health, and education to the large cities of the developing world?

One success story in urban development is that of Naga City in the Philip- pines. This is a mid-size town with 175,000 inhabitants. Until the late 1980s, like many other cities in the developing world, it was heavily indebted, corruption was rampant among city officials, and public services were in disarray due to the corruption of the Philippine government led by President Ferdinand Marcos, who ran the country as a dictatorship. After a popular uprising in 1986 that removed him from power and the election of Corazon Aquino that year as the new president of a democratic Philippines, people all over the country hoped for change. In 1988, Jesse Robredo ran for mayor of Naga City on a platform of reform. Because his opponent was linked to the old Marcos regime, people voted Robredo into office. He started by cracking down on illegal gambling, strip clubs, and prostitution. He reduced the city’s budget deficit by threaten ing businesses with higher taxes and court action if they continued to evade paying the taxes they owed. His most critical reform was to bring more transparency and citizen participation to city governance. For example, citizen representa- tives were encouraged to participate in local government committees, voicing their opinions and monitoring decision-making processes, an innovation that resulted in improved municipal services. When a corrupt provincial gover- nor imposed an ineffective police chief on the city, Robredo instituted a vice squad staffed by volunteers from the city and members of the police force who were empowered to arrest criminals engaged in illegal gambling, prostitution, and other corrupt activities. In a few years, Naga City became a model of par- ticipatory governance, winning many awards worldwide. Its experience has been studied by local politicians and urban experts from all over the world.

The key lesson of Naga City’s renewal is that more citizen participation in local governance was a key factor in the eradication of corruption and mismanage- ment. As we will see throughout this book, governance is a critical issue in economic development.

Why is There a Development gap?

As we can see from the different measures of development analyzed above (GDP per capita, poverty, health, education, and urbanization), there are significant differences worldwide in terms of the level of development. The development gap is the first and most important stylized fact in the economics of development and it raises one of the most, if not the most, important questions in the economics of development: Why did some countries develop earlier than others?

The Evolving Development gap

To get a clear idea of development issues, it is not enough simply to try to understand the development gap, which would give us only a static view. We also need a dynamic view. How is the development gap evolving over time?

The answer is that the gap has closed dramatically for some countries while it has increased for others. There are notable examples of developing economies closing the gap with wealthier nations, but there are also nations

(14)

experiencing stagnation and decline. We first look at data on economic growth and population dynamics.

Differences in Economic growth

It is helpful to look at the growth rates of different groups of countries. Fig- ure 1.7 shows average growth rates of GDP per capita (measured in purchasing power parity or PPP) across different developing regions of the world between 1980 and 2010.

As Figure 1.7 reveals, the East Asia and Pacific region has had very strong growth in GDP per capita rates in the last 30 years, at over 4% per year. Growth in South Asia has also been very strong. In contrast, growth in sub-Saharan Africa has been close to zero and in the MENA region (Middle East and North Africa) and in Latin America and the Caribbean, it has been lower than 1%.

On average, China has been growing at over 8% a year, the highest growth rate over that period for any single economy in the world. This means multi- plying income per capita by more than a factor of 10 over that period! Other Asian countries such as South Korea, India, Thailand, and Singapore have been growing at a very healthy pace as well—all with an average growth rate above 4% per year. As a consequence, the gap between Asian economies and the advanced industrialized economies has definitely been declining in the last 3

FiguRE 1.7 Average Annual Growth Rate (1980–2010) of GDP Per Capita (PPP) in Constant 2005 Prices

0 1.5 1 0.5 2 2.5 3 4 3.5 4.5

Average annual growth rate: 19802010 (%)

Sub-Saharan

Africa Middle East & North

Africa

Latin America &

Caribbean

Eastern Europe

& Central Asia

South

Asia East Asia

& Pacific

Growth rates of GDP per capita in the last 3 decades have been high in East Asia and the Pacific and South Asia, and low in sub-Saharan Africa, the Middle East and North Africa, and Latin America and the Caribbean.

(15)

decades. The fast-growing Asian economies have been often called the “Asian tigers.” Figure 1.8 gives average growth rates for a selected number of countries over the same period.

FiguRE 1.8 Average Annual Growth Rate (1980–2010, in %)

of GDP Per Capita (PPP) in Constant 2005 Prices for Selected Countries

–6 –4 –2 0 2 4 6 8 10

China Korea, Rep.SingaporeBotswanaMauritiusSri LankaThailandIndia

Hong Kong SAR, ChinaDominican RepublicEgypt, Arab Rep.MozambiqueBurkina FasoCongo, Rep.BangladeshSouth AfricaGuatemalaEl SalvadorMauritaniaCameroonPhilippinesColombiaIndonesiaParaguayArgentinaHondurasMoroccoMalaysiaRomaniaNamibiaRwandaEcuadorPakistanGuyanaSenegalAlbaniaGreeceNigeriaAlgeriaMalawiGhanaTunisiaBoliviaTurkeySudanKenyaNepalChadBeninChileBrazilPeruMaliFiji NicaraguaVenezuela, RBZambiaSierra LeoneBurundiGabonTogoCentral African RepublicMoldovaNigerGeorgiaCote d’IvoireSaudi ArabiaCongo, Dem. Rep.Liberia

China has had by far the largest growth rate in the last 30 years, while several African countries have had a negative growth rate.

(16)

In sub-Saharan Africa, some countries have had very respectable growth rates. This is the case for Botswana and Mauritius, which have had average growth rates of over 4% per year during that period. However, growth rates for most other countries are either around the 1% level, on average, or are even experiencing a negative rate. Many of the poorest countries in the world have not only become poorer relative to the richer countries, but they have also become poorer than they initially were in 1980. This includes some large Afri- can countries such as the Democratic Republic of Congo.

Countries in the Middle East and North Africa have had rather low growth rates. Saudi Arabia has had a negative growth rate despite the surge in oil rev- enues resulting from the 1973 oil embargo placed on Western nations by the Organization of the Petroleum Exporting Countries (OPEC), from which Saudi benefited tremendously. Algeria and Mauritania have had growth rates close to zero. Egypt and Morocco have had the fastest growth, but only at an average of 2.8% and 2% per year respectively.

Latin America has had a lackluster growth performance in the last 30 years with Chile (3.15%) and the Dominican Republic (2.7%) being the only excep- tions. Most countries in the region have had an average growth rate between 1% and –1%. The 1980s have often been referred to as a lost decade for Latin America because the region struggled with large foreign debts in a decade of high real interest rates and many countries underwent structural adjustment programs supervised by the International Monetary Fund (IMF).

Population growth

When considering the evolution of the development gap, population growth is also a relevant variable. Population growth should contribute to GDP growth because a larger population increases the labor force. However, if output growth is slower than population growth, GDP per capita will tend to fall. In addition, if population growth is larger in the poorer countries, the proportion of the poor in the world population will increase more over time. In other words, there will be more and more people on the wrong side of the development gap.

Figure 1.9 shows the population in various regions of the world in 2010 as a multiple of the population in 1960. The world’s poorest region, sub-Saharan Africa with a current population of 854 million, has had the highest population growth. In 2010, its population was 3.7 times larger than 50 years ago. The Middle East and North Africa, with a population of 383 million, had the next highest population growth, increasing by more than 250% in 50 years. South Asia, which includes India, has a population of 1,633 million, an increase of 185% in 50 years. East Asia and the Pacific, which includes China, is the most populated region in the world with a combined population of over 2.2 billion.

The population growth rate in that region is slightly more than half that of South Asia but still higher than in the Organisation of Economic Co-operation and Development (OECD) countries. Eastern Europe and Central Asia, while covering a large proportion of the planet’s territory, only increased their population by 33% in 50 years. These regions currently have a total population of only 890 million. The growth rates show that population growth is highest in the poorest regions of the world, in particular in sub-Saharan Africa,

(17)

and because countries in that region have also had less economic growth, this means that the development gap has been increasing there.

To summarize, the development gap has been increasing primarily in Africa, which is already the poorest continent on earth, while the development gap has been decreasing for Asian countries, including China and India.

However, a few African countries seem to have been much more successful than others in reducing the gap. Countries in the Middle East and Northern Africa or in Latin America and the Caribbean have had too low a growth rate to be able to catch up with the more advanced industrialized countries. While the development gap has been growing in many of these countries, it has been decreasing in others. How do we explain these significant differences?

Our discussion leads us to formulate another very important question that development economics must confront: Why have some poor countries started to catch up in terms of development while others have failed?

Stories of Economic Catch-up and Decline

The development gap emerged because some countries developed earlier than others. The British economy took off in the late 18th century, while significant growth in the American economy and most continental European economies began in the 19th century. Some countries, such as Japan and Germany, were subsequently able to catch up on the early developers while others were not.

When trying to understand catch-up and decline, it is important to take a FiguRE 1.9 Total Population in 2010 as a Multiple of the Population in 1960

0 Population in 2010 as a multiple of population in 1960 1 0.5 1.5 2 2.5 3.5 3 4

Sub-Saharan Africa Middle

East &

North Africa

Latin America

& Caribbean

Eastern Europe &

Central Asia South

Asia East Asia

& Pacific High income:

OECD

Population growth in the world is highest in the poorer regions.

(18)

historical perspective and look not only at what happened in the past decades, but also at economic evolution over the last centuries. In this section, we analyze some historical success stories of economic catch-up: Japan and Germany.

We also analyze historical stories of decline: China, Argentina, and Turkey’s Ottoman Empire. These countries have been growing strongly in recent years, but have experienced significant economic decline in the past.

The Historical Catch-up of Japan and germany

China and India, the two most populated countries in the world, have shown strong signs of economic catch-up in recent years, but they have not yet equaled the world’s most advanced economies. This was not the case for Japan and Germany; during the late-19th century, these nations were very successful in their efforts to catch up with the most economically developed countries of that time.

Japan has one of the most successful stories of catch-up in economic history. It was, traditionally, a feudal society and remained closed to the outside world during the Tokugawa period (1603–1867). During that time, the country was ruled by a dynasty of shoguns, or hereditary military dictators.

In 1867, the Meiji emperor took back the power from the Tokugawa shogun and engaged in a very radical and comprehensive program of social and politi- cal reforms. Japan’s rigid feudal system, with its division of society into four caste groups (samurai, which was the aristocratic warrior class, farmers, arti- sans, and merchants) was abolished, and the traditional power of the samurai was dismantled. The emperor sent missions to Europe and the United States to study the institutions of industrialized countries. Students were sent abroad for education and thousands of Western teachers were hired to instruct Japa- nese students.

The Japanese government made large infrastructure investments; it built extensive railroad and road systems, and electrification spread rapidly throughout the country. The government vigorously promoted industrialization by financing investments in large factories, setting corporate taxes at a low level, and instituting initiatives to help businessmen create networks of business relationships and associations. Large conglomerates, i.e. business groups known as the zaibatsu and composed of various firms that spanned different sectors of the economy (Mitsubishi, Sumitomo, and Nissan are names still familiar today), began to emerge. These conglomerates contributed to vigorous economic growth until World War II. The zaibatsu enjoyed large economies of scale and provided a useful structure to firms within the conglomerates for financing investments.

After its defeat in World War II and the destruction of a large part of its infrastructure, Japan recovered quickly and underwent several decades of very spectacular growth based on high-quality and low-cost manufacturing. Mas- sive quantities of Japanese cars, motorcycles, and electronics were exported to markets around the world. Figure 1.10 shows the catch-up process of the Japanese economy. It displays economic historian Angus Maddison’s estimate of Japan’s per capita income over time as a percentage of that of the United Kingdom and the United States. The United Kingdom was the first country to industrialize and was the most advanced economy in the world during most

(19)

of the 19th century. The robust American economy became the world’s largest only toward the end of the 19th century. As we can see, in the first decades after the Meiji restoration, Japanese income per capita was less than 30% that of the United Kingdom or the United States. By the beginning of the 1930s, it was over 40%. After a large dip following World War II, a very impressive catch- up process began and by the end of the 1970s, Japan had overtaken the British economy, which had a less-impressive growth rate in the decades following World War II. In the first 2 decades after the war, Japanese income per capita also rose strongly relative to the United States and reached a peak of over 80%

around 1990. However, the 1990s were a decade of stagnation for the Japanese economy.

Another example of successful catch-up is that of the German economy.

Germany has existed as a country only since 1871. Before that, there were many independent German states. In the 19th century, Germany lagged behind the United Kingdom in its industrialization process. It is only after the unification of Germany that Bismarck, the German chancellor, launched a large-scale industrialization program that focused on the development of heavy industry.

German unification itself contributed greatly to the development of markets, as tariffs between German states were abolished. The industrialization process also included the rapid development of railways and the importation of various technologies from the United Kingdom such as steel production. A new type of bank emerged, the universal bank, i.e., a financial institution that both FiguRE 1.10 Japan’s Per Capita Income as a Percentage of Levels in the United Kingdom and the United States

0 20 40 60 80 100 120 140

Percentage of UK Percentage of U.S.

1889

1881 1897 1905 1913 1921 1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 Until World War II, income per capita in Japan was below 40% of the levels in the United Kingdom and the United States. Between 1945 and 1990, Japan caught up with the United Kingdom and reached 80% of the U.S. level.

Source: Maddison, A., “The World Economy: A Millennial Perspective,” Organisation for Eco- nomic Co-operation and Development, 2007.

(20)

lent money to firms but also held equity in industrial enterprises. Universal banking played a very powerful role in using a bank’s assets to finance large investments that allowed German industry to enjoy the economies of scale and grow very rapidly. As Figure 1.11 shows, German income per capita was around 60% of the UK level until the last decade of the 19th century when it started to increase, reaching close to 80% by World War I. After World War II, the German economy recovered very quickly from the devastation that followed Hitler’s defeat and started growing faster than the British economy, overtaking it by the end of the 1960s. The German economy began to slow down relative to the United Kingdom around the time of the fall of the Berlin Wall in 1989 and German unification in 1990.

The famous economic historian Alexander Gerschenkron, who studied the history of industrialization processes, put forward the idea of “the advantages of backwardness.”¹ His thesis was that although latecomers to the industrialization process would have to compete with the early industrializers who did not face any competition, they could nevertheless achieve a faster process of industrialization that would eventually allow them to catch up with the early industrializers. First of all, a latecomer could imitate already existing technologies. Then, if that country could achieve the necessary economies of scale, it

1Alexander Gerschenkron, Economic Backwardness in Historical Perspective (Cambridge, MA: Belknap Press of Harvard University Press, 1962).

FiguRE 1.11 German Per Capita Income as a Percentage of Levels in the United Kingdom

0

150018251833184118491857186518731881188918971905191319211929193719451953196119691977198519932001 20

40 60 80 100 120

After German unification in 1871, Germany began to catch up economically with the United Kingdom and overtook it during the 1960s.

Source: Maddison, “The World Economy,” 2007.

(21)

could very quickly reach the industrial frontier, i.e., a situation in which the most advanced technologies are used in various industrial sectors. The neces- sity to achieve these economies of scale and the incentive to catch up required sufficiently large amounts of capital, which were provided either by the pri- vate sector or by the government. In Germany, universal banks helped finance large-scale investments, while in Japan, this role was played by the zaibatsu.

State intervention also played an important role by providing the necessary infrastructure investment, opening domestic markets to competition, or shield- ing infant industries from foreign competition. In both Germany and Japan, the state often directly provided part of the capital necessary for accelerated industrialization. However, while there can be significant advantages to economic backwardness, not all countries are able to use these advantages to their ben- efit. The data provided earlier in this chapter on the increasing development gap shows that most countries are not able to do so.

The examples of economic catch-up show that the development gap is not necessarily inevitable. It is not true that once a country lags behind, it cannot catch up. While this gives us reasons to be optimistic, the evidence on catch-up does not in itself give us an explanation of how and why it may or may not occur.

Economic Decline

When we look at the big questions of development, it is possible to overlook the fact that certain developing countries were not always poor. Historically, some countries were among the richest in the world, but they descended into poverty or stagnated. The best known example is China.

China was the richest country in the world for at least several centuries.

Many modern inventions, such as gunpowder, the crossbow, the abacus, the wheelbarrow, and the compass originated in China. The Chinese invented iron casting and were the first to harness draft animals, which greatly improved agricultural productivity. They invented paper, ink, and printing. The first seismoscopes to register earthquake tremors were built in China.

Figure 1.12 gives estimates by Maddison on GDP per capita in China and Europe at different times in history. Gross domestic product per capita is measured in 1990 international dollars, i.e. using purchasing power parity exchange rates based on 1990 U.S. dollars. Obviously, these numbers are very approximate and represent very imperfect measures of GDP per capita.

However, it seems clear that China had higher average living standards than Europe until at least the 14th century or even the beginning of the 17th century.

China had higher average living standards than Japan until about the early 19th century. The country then experienced a long period of economic stagnation under the Ming dynasty (1368–1644) and the Qing dynasty (1644–1912).

The British colonized China in the 19th century and the country experienced several civil wars in the 19th and early 20th centuries, first between warlords and later between the Nationalists and the Communists who fought for power after the last Qing emperor was deposed. The Chinese economy experienced turbulent years under Mao Zedong (1949–1976) and it was only in 1978 that it started growing economically again once the transition process from socialism to capitalism was initiated.

(22)

Throughout history, China was not the only country to experience periods of superior economic development as compared to Europe. After the fall of Constantinople (1453), most of Eastern Europe was dominated by the Otto- man Empire, which was for several centuries, militarily superior to most of the contemporaneous European nations. The Ottoman empire controlled not only modern-day Turkey, the Middle East and large parts of Northern Africa, but also most of the Balkans and what constitutes modern Greece, the whole of the former Yugoslavia (apart from Croatia), Romania, Bulgaria, and parts of Hun- gary, the Crimea and most of the area around the Black Sea. Estimates of living standards are hard to calculate but economic historians Suleyman Ozmu- cur and Sevket Pamuk have computed statistical time series for the wages of unskilled construction workers in Istanbul, London, Paris, and Vienna from the 15th to the 19th centuries.² Wages in Istanbul were always about a third lower than in Western Europe, but in the 19th century they started to decline as these European nations began to industrialize. The Ottoman Empire subsequently declined throughout the 19th century and eventually collapsed during World War I.

Argentina was one of the 10 richest countries in the world in the early 20th century. However, at the end of the century, Argentina had declined relative to all other wealthy countries. Figure 1.13 shows Argentina’s GDP per capita as

2Suleyman Ozmucur and Sevket Pamuk, “Real Wages and Standards of Living in the Ottoman Empire, 1489–1914,” The Journal of Economic History 62, no. 2 (June 2002):

293–321.

FiguRE 1.12 Estimates of GDP Per Capita in China and Europe in 1990 International Dollars

0 200 400 600 800 1,000

50 960

Year

GDP per capita in 1990 international dollars

1280 1700

China Europe

China was richer than Europe until the 17th century.

(23)

a percentage of levels in the United Kingdom or the United States throughout the 20th century. Around 1900, Argentina had reached 80% of the levels in the United States and the United Kingdom, but it declined continuously throughout the 20th century. By the year 2000, Argentina’s GDP per capita had shrunk to 40% that of the United Kingdom and to 30% that of the United States.

China, Turkey, and Argentina are not the only examples of relative economic decline. Spain was presumably the wealthiest country in the world in the 16th century, but it did not participate in the industrialization process and became one of Europe’s poorer economies.

There are other historical examples of economic decline. The Arab Caliph- ate, the Muslim empire created by Muhammad and his descendants under the Umayyad and Abbasid dynasties, controlled North Africa, most of Spain to the northwest, the Arab peninsula, the Middle East, and large parts of Cen- tral Asia. It was a very rich civilization, arguably more advanced than Western Europe at the time, which was undergoing a period of cultural and economic decline during the Dark Ages that followed the fall of the Roman Empire.

Throughout what was called the Islamic golden age that lasted more or less until the Crusades (11th and 12th centuries) or the Mongol invasions of Europe (13th century), there was a blossoming of science, culture, and technology. The Arabs made important breakthroughs in medicine, architecture, engineering, and science, in particular mathematics and astronomy. They preserved and expanded knowledge from the ancient Greek and Persian civilizations, which FiguRE 1.13 GDP Per Capita of Argentina as a Percentage of Levels in the United Kingdom and the United States

0 20 40 50 60 80 90

70

30

10

Percentage of UK Percentage of U.S.

1905 1913 1921 1929 1937 1945 1953 1961 1969 1977 1985 1993 2001 Argentina was one of the richest countries in the world in 1900, with a GDP per capita of 80% of the world’s wealthiest countries, the United Kingdom and the United States. How- ever, it experienced continuous decline throughout the 20th century.

(24)

was ultimately passed on to the Europeans during the Renaissance. Commerce was vibrant throughout the Mediterranean and the Middle East during the Islamic golden age. Baghdad was for centuries one of the richest and most cul- turally sophisticated cities in the world.

There were other civilizations that realized regional or global economic supremacy. Ancient Egypt was probably the wealthiest country in the world from 3200 BCE to 332 BCE, the longest known period of economic supremacy in history. At its height in 500 BCE, the Persian Empire controlled the Mid- dle East and parts of North Africa and Central Asia until Alexander the Great defeated its army in 330 BCE. The Roman Empire and later the Byzantine Empire were both technologically and economically very advanced. It was not until the 15th century that Western Europe achieved the living standards that existed under the Roman Empire a thousand years before. When the Roman Empire split in two in 395 CE and Rome was invaded by barbarian hordes, the Eastern Roman empire, Byzantium, continued to develop rigorously, and was a dominant regional power, only rivaled by the Arabs between the 6th and 11th centuries.

Certainly there are other examples of civilizations that rose and fell before the Industrial Revolution, which permanently changed economies from predominantly rural to predominantly urban and industrial. Apart from Argen- tina, we probably have not yet witnessed long-term declines in industrialized countries because the history of industrialization is still young and spans only about 250 years. However, it is interesting to note that the United Kingdom, the first country to industrialize, went through a period of relative decline in the 20th century. While it was clearly the richest country in the world in the 19th century, its economic supremacy was lost in the 20th century and it is only toward the end of the 20th century that the British economy began to bounce back. Even within industrialized countries there are whole regions that go through periods of long-term economic decline. This discussion leads us to the following question: Why do some wealthy countries begin to decline and ultimately become poor?

This is obviously a question that concerns both developing countries as well as prosperous economies. The fear is often raised that competition from dynamic developing countries such as China and India might eventually undermine the economies of the richer countries (the Western European nations, the United States, and Japan), resulting in their economic decline.

important Questions

In this chapter, as we examined the facts that contribute to the development gap, we have asked three important questions:

1. Why did some countries develop earlier than others?

2. Why have some poor countries started to catch up economically while others have failed to develop?

3. Why do some rich countries decline and ultimately become poor?

In this chapter, we have mainly reviewed the factors that contribute to the development gap; as a result, we have not yet tried to provide answers to these questions. Finding answers is what we will attempt to achieve in the chapters

(25)

that follow. Obviously, these are not the only questions studied in development economics. However, the three questions raised here, especially the first two, are at the crux of most other questions that development economists try to answer. It is critical to keep them in mind as we progress through the book.

Chapter Summary

Facts about the Development gap

We have presented data on the development gap that shows the differences in income, health, education, and level of urbanization across countries in the world. These data give us a better sense of what we are dealing with when we consider development issues, and they help to inform us about the economies of different countries. The development gap is greatest in sub-Saharan Africa and South Asia. We presented some success stories in health (the Kenyan experience with treated bed nets and the fight against malaria), education (the South Korean education system), and urban development (the experience of Naga City in the Philippines).

The Evolving Development gap

We examined data on economic growth in the different countries and regions of the world and

discussed the fact that some developing countries, mostly in Asia, have been growing rapidly and have begun to close the development gap. Other countries, in particular in Africa, have unfortunately seen the development gap increase in recent decades.

Stories of Economic Catch-up and Decline We presented some historical data on the process of economic catch-up that took place in Japan and Germany since the end of the 19th century. We have also seen examples of the opposite tendency, that of decline, in particular the case of Argentina, clearly not the only case of economic decline in history.

Key Terms

development gap

gross domestic product (GDP) per capita industrial frontier

infant mortality rate life expectancy

purchasing power parity (PPP) secondary school enrollment rates universal bank

urbanization rates

Review Questions

1. Go to the following World Bank webpage:

http://www.app.collinsindicate.com/

worldbankatlas-global/en-us

In the search box in the upper right corner of the page, enter the following: GDP per capita, PPP (current international $). A map of the world will appear. If you click on the Play button in the center below, you will see the evolution of

the map since 1980. Record your three most important observations and give reasons for your selections.

2. Go to the following World Bank webpage:

http://databank.worldbank.org/ddp/home.do In the Database section, select the first row,

“World Development Indicators.” As a new page appears, click “Select all” for countries. As

(26)

a new page appears, in the list of series, select

“GDP per capita, PPP (current international $).”

Click the “Select all” button for years. Click

“Next.” Click the “Map” button. As you can see, there are no data for 1960. Select “1980” in the

“Time” box. Do this for other years. Carefully observe the results and note your observations.

You can choose other series and other years to display maps of development data.

3. Go on the following World Bank webpage:

http://databank.worldbank.org/ddp/home.do In the Database section, choose the first row,

“World Development Indicators.” As a new page appears, click “Select All” for countries. As a new page appears, in the list of series choose

“GDP per capita, PPP (current international $).”

Click the “Select all” button for years. Click the

“Download” button. As a new page appears, click “Excel.” You should be able to open the downloaded series as an Excel file, either on a Mac or a PC. Build a chart for 2005. Select the best chart format to present your data.

4. Follow the same steps as in Question 3 above and download for 2005 the series for “Poverty Headcount ratio at $1.25 a day, PPP (% of population)” and “Life expectancy at birth, Total (years).” Display the two variables in a scatter point chart with one variable on the horizontal axis and the other on the vertical axis. What are your main observations? Are there countries with high poverty and high life expectancy?

Are there countries with low poverty and low life expectancy?

5. In the May 19, 2012 issue of The Economist (www.economist.com), read the article “African child mortality. The best story in development.”

Find documentation elsewhere about policies

that reduce child mortality and discuss through which channels this occurs. What is your opin- ion on the best policies to address the issue?

6. Read Chapter 2 in Angus Maddison’s “The World Economy: A Millennial Perspective”

OECD, 2007. What lessons do you take from it on the effects of Western expansion on countries in Asia, Latin America, and Africa?

7. Choose a developing country and look up the data analyzed in this chapter on GDP per capita, the poverty headcount ratio, life expectancy, infant mortality, secondary school enrollment, urbanization, and population for that country. How have these data evolved in the last 20 years? Interpret these evolutions.

8. In Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty (Public Affairs Book 2012) by Abhijit Banerjee and Esther Duflo, read Chap- ter 2. How do you relate the story of Pak Solhin’s descent into poverty to the issues we have just discussed in this chapter? What is the main lesson from Banerjee and Duflo’s chapter on hunger among the poor in developing economics?

9. Look up the Programme for International Student Assessment (PISA) data base on international student assessment at http://pisa2006.acer.edu.au.

Look up scores for reading, math, and science at the grade 7 level. In each category, which are the five developing countries (non-OECD countries) that do best and the five that do worst? Do you see patterns in your results?

How do you interpret these results?

10. In Daron Acemoglu and James Robinson’s Why Nations Fail (Crown Business Publishers, 2012), read Chapter 3. Does the theory in that chapter help explain the development gap? How?