Thursday, November 22, 2012

Acemoglu and Robinson vs Jeffrey Sachs - Factors in Growth/Development Economics

Wow, there has been a raving review by Sachs on the new Book by Acemoglu and Robinson "Why Nations Fail". And then Robinson and Co. did write a rebuke that is, well, one twitter comment put it this way: unkindly. Read it here.

For all those people with modern attention spans and a disinclination to read (well, what are you doing here?!), I will sum it up. J.D. Sachs believes that multi-factor theories with predictive power are most important, especially the prediction part as he posted in the "twitter engagement". But above that he still values his theory of geographic factors. Robinson and Acemoglu say: Geography might explain some things but institutions matter more.

I think both are right. For development economics, it helps if you have the right geography, but helpful geography is not the end. To utilize these advantages (coast-line, climate, water-access etc.) you need the right institutions, the right history, culture and probably neighbours. This is what Robinson/Acemoglu played at when they mentioned diamonds in Botswana. There are other African countries with a lot of natural ressources, but they did not succeed economically.

So in the end, development depends on the factor of good institutions combined with using advantages due to natural ressources. Although there are oxymorons out there, that show that geography at least is in part not that important: Singapore.
On average however, it seems that geography can jump-start an economy (why else is Siberia so weak).

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