Populations, not Nations, Dictate Development

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One of the more intriguing empirical regularities in recent growth research involves population origins. Rather than thinking about rich and poor countries, work by Louis Putterman and David Weil tells us to think about rich and poor population groups (Europeans and Native Americans, for example). Countries are rich if their population is made up of rich population groups, and vice versa. The U.S. is rich because it has lots of European descendants, and relatively few Native American descendants. Mexico, in contrast, is relatively poor because it has a few European descendants but lots of Native American descendants.

The interesting aspect of these findings is that they suggest we are looking at the wrong units of observation, so to speak, in studying economic growth and development. We should be studying the characteristics of population groups, not countries, and looking at the characteristics that make those groups prosperous relative to others.

I pulled two sets of results out of the survey by Spolaore and Wacziarg (2013), which is a great introduction to this material if you want more depth. The first are regressions of output per worker in 2005 on either years since agriculture first began or years of “state history” (i.e. how long organized political regimes have existed) for each country. Columns (1) and (3) show that the country-level measures of agriculture or state history are not relevant. But if you weight the years since agriculture began or state history by population composition, you get a different story. As an example, the weighted state history for the U.S. is a weighted average of the state history of England, Germany, Italy, etc.. (quite long) as opposed to the state history of North America (quite short).

Spolaore Wacziarg 2013 Fig 5

The length of time that populations have had settled agriculture and organized states is highly correlated with output per worker today. Countries that have more history with economic organization are richer today.

Spolaore and Wacziarg’s next table shows that even holding those features constant, the share of Europeans in the population of a country is highly correlated with output per worker today. The upshot is that Europeans and their descendants are rich (as a group), wherever they are in the world, but not so for other population groups. See Easterly and Levine (2012) for more robustness checks on this result.

Spolaore Wacziarg 2013 Fig 6

This idea that some population groups are the source of economic success leads to reactions that run from raised eyebrows to accusations of racism. But let’s be very clear that this finding regarding population groups implies nothing about any kind of inherent superiority to Europeans as a group.

We need only a few things to hold for these patterns to arise:

  • First, economic organization has to be subject to some kind of cumulative process. Whether you want to call it tacit knowledge, acculturation, or learning-by-doing, successful economic organization must be something that cannot just be snatched out of the ether. Each generation builds upon the prior’s organization to become a little more advanced.
  • Second, that cumulative knowledge is passed on more easily the more closely related – culturally, linguistically, genetically – are two groups. The English and French can benefit from each others accumulating knowledge more easily than the English and Chinese for example.
  • Finally, you need Europe to “get started” earlier than other regions.

With those three elements, you get Europeans with an advantage today in economic organization. They simply got rolling earlier than other areas with figuring things out, and because it is much easier for Europeans to learn from Europeans, they maintain this early advantage over long periods of time.

Further, because economic organization is something accumulated within a cultural group, it moves with them. Hence the United States gains the benefits of the long European history with economic organization, while Mexico does not to the same extent.

Does that mean European-descended places are permanently entrenched as the richest places in the world? It might. The outcome depends on whether other population groups can improve their economic organization faster than Europeans. And this in turn depends on how fast the organization ideas of Europeans spill over or get transmitted to other groups. If other population groups are both learning on their own *and* are acquiring new ideas from Europeans, then they should be catching up. Maybe slowly, but they should catch up.

On the other hand, there could be some kind of increasing returns to scale here, with Europeans getting even better and better at economic organization as they get richer. Combine that with slow spillovers, and the European population lead could not only persist, but widen as time goes on.

If you want to avoid this spiral of divergence, then this literature implies three possible actions. (1) import Europeans, (2) export your people to European places, or (3) assimilate European culture.

Not sure of many places that are actively trying to recruit European settlers (although Paul Romer’s whole charter city thing sort of falls in this arena). Lots of developing country citizens do actively try to export themselves to European countries every year.

The last one is probably the most controversial. We can’t really tell people in poor countries to “act European”? The whole point is that European culture is this accumulated body of tacit knowledge that is not readily translatable. So how would you actually “assimilate European culture” even if you wanted to? It can obviously happen over time – there are 736 Kentucky Fried Chicken outlets in South Africa – but is this something you can actively manage?

Finally, this means the really interesting question is: how did Europeans get a head start in the first place? The research that Spolaore and Wacziarg review suggests that the advantages go back deep in time. It could be the nature of their agricultural endowments (as in Jared Diamond), or their optimal mix of diversity across groups (Ashraf and Galor), or pure un-adultered luck.

Regardless, studying development in light of this research implies studying population groups or cultures as the units of analysis, rather than confining ourselves to borders that may not have any information content about the economic organization of the populations inside of them.

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30 thoughts on “Populations, not Nations, Dictate Development

  1. “Not sure of many places that are actively trying to recruit European settlers”

    Try most of south east asia. Singapore in particular long had a policy of actively recruiting Westerners to run businesses. Malaysia has done this as well, though balanced with some degree of ‘Malays first’. Vietnam has definitely been importing talent for the last ten years to get things in order. Thailand has a lot of ‘foreign talent’ but has largely kept them out of the upper ranks of national companies (unlike Singapore). China is also mixed – lots of imported talent to run things like the Olympics and IBM but also lots of preferences towards Chinese. The gulf has a done a considerable amount of importing foreigners as well, though I’m not as familiar with the scope of importing Westerners vs labourers.

    “assimilate European culture”

    Asia has clearly done some of this, mostly by sending locals to the West for education and then encouraging them to return.

    Singapore is perhaps the most extreme example of importing culture. As an ex-colony it has primarily British institutions – government, schools, legal structure – and primarily non-European people. Unlike India – which mostly has resisted importing foreign talent – Singapore persisted in attracting foreign talent. It now has the world’s highest GDP per capita. So maybe one can assimilate European economic organisation?

    • Fair enough – I knew Singapore actively recruited Western companies, but not necessarily Western people to run domestic companies. So I guess an example of someone trying to leverage that advantage in economic organization.

      I definitely agree that the cultural assimilation is occurring – but I think the big question is what parts are crucial? Do you have adopt everything (kind of like Singapore) or can we pick out the particularly important pieces. Don’t know the answer.

    • Singapore may be the most extreme, but Japan is surely an earlier, bigger and arguably more successful example (read about the Meiji Restoration and the subsequent decades), and they were able to keep much of their pre-European-import culture into the bargain. They sent lots of people to study, come back and apply, and hired Europeans to teach them stuff, too. We are used to thinking of Japan as a nation at the forefront of the developed world, but 150 years ago it was this quaint funny country with nice fans and cloisonne — contemporary Europeans thought of it kind of like we may think of Bhutan today. And the funny thing is that nobody knows what enabled the Japanese to transform themselves, in less than five decades, into a nation that could take on an established, sort-of-European great power — Russia — in a modern war and win.

      • That’s a great example. But absolutely, why did Japan 1) decide to copy the Europeans and 2) convince everyone to play along?

      • It’s fairly well-attested why Japan decided to copy the Europeans. The Choshu and Satsuma lords who led the Meiji Restoration were determined to avert domination and colonization, whether military or cultural, by foreign powers, by whatever means necessary. They had lots of examples at hand to study and they didn’t care for that. As for your second question, again, there are some well-known factors that went into that, but once one tries to dig slightly deeper, into the questions which of those were important and why, how they arose and interacted, one is again at sea. I don’t know the answer, but I suspect that 1) this sort of question cannot be satisfactorily answered by crunching ‘data’ (i.e. statistics), thus leaving many modern researchers methodologically stumped, and 2) that an answer to these questions is unlikely to be such as to make the modern liberal (or conservative, for that matter, given what passes for conservatism these days) happy.

      • Fair enough, i dont know J history well enough to have ideas on answers. But Id guess you are right that these are not “data” questions, other than suggestive observational stuff.

  2. In Chicago the African American and Hispanic communities are poor by contemporary standards. 100,000 our of (I guess) 200,000 gang age minoirty males are in street gangs to make a living.
    http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCAQFjAA&url=http%3A%2F%2Fwww.cbsnews.com%2Fnews%2Fgang-wars-at-the-root-of-chicagos-high-murder-rate%2F&ei=txCoVOHAJtWqyASL-YKYAw&usg=AFQjCNFKUrZnSW8skB8KslJ2gLcmYfNa3Q&sig2=2WCJNlX97TyIQm1-0D5-Mg

    This may — er, must — have something to do with the early 2007 federal minimum wage under performing Malthus! Under Malthus when per-industrialized population grows one-half, wages should fall (only) one-third. Between 1968 and early 2007 the min wage dropped almost by half.

    dbl indexed for inflation and per capita income growth:

    yr..per capita…real…nominal…dbl-index…%-of (2013 dollars)

    68…15,473….10.74..(1.60)……10.74……100%
    69-70-71-72-73
    74…18,284…..9.43…(2.00)……12.61
    75…18,313…..9.08…(2.10)……12.61
    76…18,945…..9.40…(2.30)……13.04……..72%
    77
    78…20,422…..9.45…(2.65)……14.11
    79…20,696…..9.29…(2.90)……14.32
    80…20,236…..8.75…(3.10)……14.00
    81…20,112…..8.57…(3.35)……13.89……..62%
    82-83-84-85-86-87-88-89
    90…24,000…..6.76…(3.80)……16.56
    91…23,540…..7.26…(4.25)……16.24……..44%
    92-93-94-95
    96…25,887…..7.04…(4.75)……17.85
    97…26,884…..7.46…(5.15)……19.02……..39%
    98-99-00-01-02-03-04-05-06
    07…29,075…..6.56…(5.85)……20.09
    08…28,166…..7.07…(6.55)……19.45
    09…27,819…..7.86…(7.25)……19.42……..40%
    10-11-12
    13…29,209…..7.25…(7.25)……20.20?……36%?

    HINT: On what might be a good start to catching up poor populations in the United States.

  3. So Iraqis are the most economically successful people in the world? China, Egypt and Iran are the world’s dynamic economies? Oh but you aren’t defining government and agriculture in those ways, you are picking a definition that gives you the result you want. Ignore the political upheavals in France and count the ones in China.

    Step 1: Notice a trend, in this case north atlantic countries are economically successful.
    Step 2: Define a parameter that lumps together the members with the trend you want
    Step 3: ???
    Step 4: Science!

    • John – I’ll admit I don’t know what you are responding to here. I guess your argument is that because Mesopotamia has the longest history with settled civilization, it should be most advanced. Since that is obviously not the case, the whole argument must be wrong.

      I wasn’t clear about the “start date”, and that is obviously important here. Think 1000 AD, when Europe, ME, China, are all on roughly a similar level of development, with Europe lagging most likely. At this point, the Europeans make some important advances in developing economically – why Europe and why around then? I don’t know, that’s the interesting question. But once Europeans get this advantage, it rolls up over time.

  4. I am really puzzled by the conclusions.
    It is true that nowadays we can compare nations and see European countries have an economic advantage. But before our era, there were other prosperous countries/civilizations (Egypt or Mali in Africa; Incas in LA; India; China; Mesopotamia). Countries have learned/copied best practices from others to develop; this is not new. I could not find a related graph I saw a few years ago; but European advantage seems a recent phenomenon from an historical perspective (only about 500 years).
    Why do you think it will keep rolling over time? It may be too soon to tell…

    • Id push the advantage back a little further, but that is just quibbling. The big question is why Europe got the advantage in the first place, and all these other civs didnt manage it even with the same time frame to work with.

  5. An (ugly and possibly racist) thought comes to my mind: assuming I understand your main point here, does the fact that most of the population growth in the United States over the next 30 years or so will come from non-Europeans suggest that US growth will likely be weaker than expected?

    Please tell me where I’m going wrong here!

    • It could be. If population groups don’t learn from each other very quickly, then yes, that research implies that an increasing non-Euro share would be bad for growth. If populations learn quickly from each other, then it won’t necessarily be that bad, as non-Euro population adopts whatever it is that makes Euro populations productive.

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  7. “how did Europeans get a head start in the first place? ”

    Greg Clark’s hypothesis should be taken into account that it is somewhat genetic. To casually dismiss this as “racist” seems wrongheaded to me.

    Cochran and Harpending in 10000 year evolution show how rapidly recent evolution can occur looking at different cases (lactose tolerance for instance). The notion that we stopped evolving 50k years ago is obviously incorrect, and especially so with larger populations recently and different selection pressures.

    The problems in long established communities in say Mesopotamia may be explained in part by arab conquest and large degree of cousin marriage causing problems.

    Ultimately any explanation of differences in population outcomes HAS to take into account different average iq (as well as other heritable behaviors: time preference, aggressiveness, etc.), given the enormous causative power of iq on socio-economic outcome. But that largely leads down a path many get uncomfortable with, even if it is what the evidence strongly suggests…

    • with regards to the specific spark that ignited the European potential, i.e. the Industrial Revolution and subsequent escape from Malthus, I believe Mokyr and McCloskey have the best explanation: a bourgeoise revaluation that took place in the 17 and 18th century combined with an increase in scientific knowledge leading to higher epistemic base sustaining technological “tinkering” and improvements post first IR. Mokyr has several papers on his website on this as well as his excellent book, “Lever of Riches”, which McCloskey’s best book is the second in his series, “Bourgeoise Dignity.”

      • They all fit in that general “getting organized” theme. You could add de Vries consumer revolution. Mokyr’s “Enlightment Economy” is a broader study than “Lever of Riches” (which is absolutely fantastic).

    • Good point. There is definitely work in econ growth about genetics (see Oded Galor and Omer Moav’s work). But yes, people get touchy about it. Which of course, doesn’t mean it’s wrong.

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  9. Genetic differences is the reason, and they are due to selection.
    In Europe after the collapse of the Western Roman Empire the germanic catholic clergy/elites introduced the manor system in what’s now called the Hajnal Line area.
    The people that were sorted/ breed-ed in this system had what are now called middle class values (ever lower violence levels\ higher impulse control, higher consciousness, higher age of marriage , they were out-breed unlike the aristocrats and non-hajnal people).
    And over time they displaced/ both the upper (aristocrats) and lower classes.

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  12. I’m a bit late to this conversation, but I’d raise a few points: (1) as you freely admit, it’s not necessarily Europeans, per se, but something about European culture and/or economic organization. But with the latter, you start getting into institutional practices as a fundamental cause of growth, a position that you had been uncomfortable with; (2) Moreover, the share of European languages spoken by the popoulation is exactly one of the instruments used for institutions (e.g. Hall and Jones 1999). To be fair, the explicit term in their paper is “social infrastructure,” so I suppose you can retain a distinction between social capital and institutions, but I’m sure you’ll admit at some point it’s hard to dispute the observational equivalence between the two measures; (3) I think it boils down to specific institutional practices—along the lines of Acemoglu-Johnson’s “unbundling institutions”—that may matter. A-J use the distinction between property rights and contracting institutions, but one could also distinguish between more general rule-of-law versus, say, systems of representation (democracy/autocracy), or control of corruption. I, for one, am not skeptical of the latter measures, which I view as largelty endogenous to the state of development (and in any case are not as “actionable” governance as much as rule of law/property rights). These specific institutions are, incidentally, much more “importable”; (4) A throwaway point on Japan: In addition to importing Western practices as an impetus for survival against European colonization, it is useful to recall that Japanese culture has long absorbed (and naturalized) those of powerful neighbors. Before the Meiji Reformation, Japan had taken on Confucian practices during the Nara and Heian periods, and this was revived by the Tokugawa Shogunate.

    • All good points. I will say that I’m uncomfortable with the *empirical evidence* regarding institutions, not with the concept itself. So I think you’re right that “Europeanness” probably refers to a set of cultural institutions. Japan might really be the right way to study this, in terms of what institutions are adopted (or not) and how those can be successful.

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