An inquiry into the nature

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An inquiry into the nature causes of the wealth
of nations.

• Why are some nations rich and others poor?
• We draw heavily on the work of Professor Robert
  Gordon, Northwestern University, and Professors
  Gerald Dwyer, Robert Tamura, and Scott Baier,
  Federal Reserve Bank of Atlanta and Clemson
  University.

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The map we will follow

• Theories
• Evidence
• Prospects
• What you can do

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Theories of Economic Development

• What explains ED?
• Labor and capital employed
• Climate
• Religion
• Conquest
• Access to markets and ideas
• Natural endowment
• Investment in human capital
• Property rights
• N-achievement

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And PARTICIPATION IN TRADE!... which leads to
specialization!But what is economic success?
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Ultimate Measure of Economic Success

• Standard of Living Income per capita
• 1.3 growth, doubles every 53 years (Philippines)
• 5.6 growth, doubles every 12 years (Korea)
• For very long-term growth or comparing rich and
  poor nations, income per capita and productivity
  are the same thing
• Not the same thing for short-term or comparisons
  among rich nations

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Q f(Capital, Labor)and unexplained
variation Note UV is Total Factor
Productivity.

• Q f(Capital, Labor, Education, Experience,
  Climate, Open)
• Q f(C, L, E, Cl, O, Property Rights)
• Q f(C, L, E, Cl, O, P R, Demo, Corrupt)

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And when we dont work?
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A Note on the Importance of Labor

• The critical variable. Necessary but not
  sufficient.
• What is the number of adults in a society?
• What is the level of education and experience?
  (Human Capital!)
• What share of them is available in the labor
  force? (Participation rate!) Typical level 58
  Male, 43 Female. Turkey 19 Female.
• How many hours per year do they work? Europe
  average is 20 less than U.S. and world. Eastern
  Europe like the world.
• What is the output per hour? (Productivity!)
• What are the rules that determine holidays?
  Vacations? Unemployment compensation? Hours that
  stores and businesses can be open?

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Unemployment Rates, OECD Countries,2004
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Percent of Unemployed without Work for One Year
or Longer,OECD, 2004

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Output per Capitaand Output per Hour
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Where is the Difference? Bart Van-Ark,
Groningen Economic Development Center

• 55 retail trade
• 24 wholesale trade
• 20 securities
• Rest of the economy ZERO
• U. S. negative in telecom, backwardness of mobile
  phones

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Dwyer-Tamura-BaierTheir Data

• 145 countries for varying numbers of years
• Before 1900 for 23 countries
• 98 of the population of the world in 2000
• Includes human capital using
• Schooling
• Experience
• All adjusted to 1985 U.S. purchasing power
• Also includes data on property rights,
  democratic, corruption, geography, climate,
  access to markets.

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Effect of U.K. Institutions and Geography on the
Philippines

• Philippines has
• Labor productivity 7 percent of U.S.
• Capital productivity 25 percent of U.S.
• If Philippines had U.K. geography
• Labor productivity would be 28 percent
• Capital productivity would be 26 percent
• If Philippines had U.K. institutions
• Labor productivity would be 75 percent
• Capital productivity would be 58 percent

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Prospects
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Measure of Economic Output Purchasing Power
Parity (2005)

• Nation GDP Per Capita
• Norway, U.S., Ireland 41,000
• Iceland, Denmark, Canada 35,000
• H.K., Austria, Switzerland 33,000
• Japan, Germany, U.K. 31,500
• France, Italy, Singapore 29,000
• Portugal, Czech Rep. 19,000
• Malaysia, Russia 11,000
• Bulgaria, Romania, Brazil 9,000
• Ukraine, China, Algeria 7,200
• Yemen, Ethiopia, Congo 750

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Growth Competitiveness Index Rankings World
Economic Forum 2006

• Country Ranking Competition Score
• Switzerland 1 5.81
• Finland, Sweden and Denmark 2, 3 and 4
• Singapore 5 5.63
• United States 6 5.61
• Japan 7 5.60
• Germany 8 5.58
• U.K. 10 5.54
• Estonia 25 5.12
• Czech Rep. 29 4.74
• Slovak Rep. 37 4.55
• India 43 4.44
• Poland 48 4.30
• China 54 4.24
• Angola 125 2.50

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Growth Competitiveness Factors

• 1. Public Institutions
• Property Rights, Ethics, Judicial and Government
  Integrity, Security, Needless Regulation,
  Government Waste
• 2. Infrastructure
• 3. Macroeconomy
• Inflation, Debt, Savings
• (see www.weforum.org for details)

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Growth Competitiveness Factors

• 4. Health and Primary Education
• 5. Higher Education and Training
• 6. Market Efficiency
• Distortions (subsidies), Tax, Corruption
• 7. Technological Readiness
• 8. Business Sophistication
• 9. Innovation
• IP Protection RD

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Corruption Perception Index 2006 Transparency
International

• Nation Ranking Score
• Finland, Iceland, N.Z. 1 9.6
• Denmark, Singapore 4 9.5
• U.K., Luxembourg, Austria 11 8.6
• Germany 16 8.0
• Japan 17 7.6
• Belgium, Chile, U.S. 20 7.3
• Italy, Czech, Slovakia 46 4.8
• Poland, Jamaica, Turkey 61 3.7
• China, Brazil, Mexico, India 70 3.3
• Ukraine, Georgia, Mali 99 2.8
• Russia, Rwanda, Nepal 121 2.5
• Iraq, Burma, Haiti 161 1.9

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World Bank Rankings (2006)www.doingbusiness.org

• Economy Ease of Doing Starting a Dealing with
• Business Business Licenses
• Singapore 1 11 8
• United States 3 3 22
• Hong Kong 5 5 64
• Japan 11 18 2
• Czech Rep. 52 74 110
• China 93 128 153
• Russia 96 33 163
• India 134 88 155

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World Bank Rankings (2006)www.doingbusiness.org

• Economy Hiring and Registering Getting
• Firing Property Credit
• Singapore 3 12 7
• United States 1 10 7
• Hong Kong 16 60 2
• Japan 36 39 13
• Czech Rep. 45 58 21
• China 78 21 101
• Russia 87 44 159
• India 112 110 65

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World Bank Rankings (2006)www.doingbusiness.org

• Economy Protecting Paying Trading
  Across
• Investors Taxes Borders
• Singapore 2 8 4
• United States 5 62 11
• Hong Kong 3 5 1
• Japan 12 98 19
• Czech Rep. 83 110 41
• China 83 168 38
• Russia 60 98 143
• India 33 158 139

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World Bank Rankings (2006)www.doingbusiness.org

• Economy Enforcing Closing a Ease of
  Doing
• Contracts Business Business
• Singapore 23 2 1
• United States 6 16 3
• Hong Kong 10 14 5
• Japan 5 1 11
• Czech Rep. 57 113 52
• China 63 75 93
• Russia 25 81 96
• India 173 133 134

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Best Outsourcing LocationA.T. Kearney (Global
Management Consulting Co.) 2005 Rankings

• Rank Country Total Score
• 1 India 6.87
• 2 China 6.14
• 3 Malaysia 6.07
• 4 Philippines 5.87
• 5 Singapore 5.73
• 6 Thailand 5.72
• 7-8 Czech Republic/Chile 5.58
• 9 Canada 5.52
• 10 Brazil 5.50

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Most Globalized Countries (2006) A.T. Kearney
Carnegie Endowment for International Peace
(2004 data)

• Country Total Economic Personal Technological
  Political
• Rank Integration Contact Connectivity
  Engage.
• Singapore 1 1 3 12 29
• Switzerland 2 9 1 7 23
• U.S. 3 58 40 1 41
• Ireland 4 4 2 14 7
• U.K. 12 25 14 8 4
• Czech R. 16 5 6 22 35
• Germany 18 41 28 16 11
• Hungary 20 7 17 27 20
• Poland 33 30 32 31 25
• China 51 28 55 50 47

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N-Achievement
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Questions for Discussion

1. What explains the sharp difference in GDP per
   capita as between Europe and the United States?
2. Desoto proposes turning squatters in urban slums
   into property owners. How would you do that?
3. Many countries limit the number of hours a person
   can work each week. Assess the relative merits
   of such rules.