Latest Cato Research on Growth and Development https://www.cato.org/ en In Search of Reforms for Growth: New Stylized Facts on Policy and Growth Outcomes https://www.cato.org/publications/research-briefs-economic-policy/search-reforms-growth-new-stylized-facts-policy-growth William Easterly <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Many scholars (including me) have proclaimed the failure of a&nbsp;package of market‐​oriented reforms proposed in the 1980s and 1990s—variously known as the Washington Consensus, the International Monetary Fund and World Bank structural adjustment, globalization, or neoliberalism. I&nbsp;seek to update the stylized facts on policies and growth that influenced this verdict. While I&nbsp;do not claim that there is any causal interpretation on policy reforms and growth, I&nbsp;argue that theories of policies and growth should at least seek to keep updating and explaining such stylized facts.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The earlier stylized facts featured the zero or low per capita growth in the regions that were the focus of reform: Africa and Latin America. This produced some strong conclusions on the Washington Consensus (in both the academic literature and the applied policy debates). For example, economist Dani Rodrik argued in a&nbsp;2006 paper that “proponents and critics alike agree that the policies spawned by the Washington Consensus have not produced the desired results.… It is fair to say that nobody really believes in the Washington Consensus anymore. The debate now is not over whether the Washington Consensus is dead or alive, but over what will replace it.”</p> <p>I also expressed doubts in 2005: “Repeated [structural] adjustment lending … fails to show any positive effect on policies or growth.” And I&nbsp;noted in another paper the Lost Decades (originally a&nbsp;decade of slowdown in Japan’s economy during the 1990s) for Latin America and Africa, a&nbsp;discouraging outcome of stagnation in spite of policy reform from 1980 to 1998. Rodrik declared that even the “most ardent supporters of reform now concede that growth has been below expectations in Latin America” and that “success stories in sub‐​Saharan Africa [have been] few and far in between.” The World Bank noted that “some countries managed to sustain rapid growth with just modest reforms, and others could not grow even after implementing a&nbsp;wide range of reforms.”</p> <p>The doubts about the Washington Consensus had begun even earlier. In 1997, Rodrik asked whether globalization had gone too far. And in 1995, Paul Krugman noted that “the real economic performance of countries that had recently adopted Washington consensus policies … was distinctly disappointing.” Since economist John H. Williamson had defined the Washington Consensus in 1990, many economists doubted it almost as soon as the first postreform numbers appeared.</p> <p>More recently, Rodrik and economists Suresh Naidu and Gabriel Zucman called for a&nbsp;new economic order in “Economics after Neoliberalism,” a&nbsp;<em>Boston Review</em> article, because “many of the dominant policy ideas of the last few decades are supported neither by sound economics nor by good evidence.”</p> <p>The literature on policies and growth has some well‐​known shortcomings. It failed to resolve causality from macropolicies to growth or even to measure macropolicy effort directly as opposed to indirect and endogenous measures of policy outcomes. If it were possible to resolve these problems, the literature would have probably done so by now.</p> <p>Yet the examples above show that the stylized facts on policy outcomes and growth—that poor growth outcomes accompany improved policy outcomes—influenced beliefs on the policy‐​growth relationship. If so, it seems strange that these stylized facts have not been updated in the literature, as much more data have become available. Increased emphasis on resolving causality is welcome, but it should not prevent the updating of influential noncausal stylized facts. My purpose is to fill this gap in the literature and report new stylized facts.</p> <p>First, my principal finding is that there has been additional and quite remarkable progress on reform outcomes since the late 1990s. Earlier judgments on the reforms often happened before the reform process was complete and/​or had enough postreform growth data to evaluate reforms. This first stylized fact could also be consistent with an exogenous international trend toward reform, although again causality cannot be proven.</p> <p>The second stylized fact is that there is a&nbsp;strong correlation between improvements in policy outcomes and changes in growth outcomes.</p> <p>The third stylized fact is that growth has recovered in Africa and Latin America in the new millennium and that the regression of growth on policy outcomes explains a&nbsp;substantial part of the growth recovery.</p> <p>One of my main contributions is the documenting of the both extremely bad and moderately bad policy outcomes that were surprisingly common in the 1980s and early 1990s; such outcomes have mostly disappeared. This policy revolution has received little attention in the previous literature. Explaining how this happened would be a&nbsp;fascinating topic for future research. There are many possible explanations—did the Washington Consensus advice have a&nbsp;delayed positive effect on reform after all? Did the human capital of policymakers increase over time so as to change destructive policies? The common trends could be consistent with an exogenous international trend toward reform, although this cannot be resolved definitively.</p> <p>The results are also an interesting case study in the use of evidence in the political economy of reform. When new reforms are announced with as much fanfare as the Washington Consensus, there is pressure to evaluate the reforms as soon as possible. This can lead to what I&nbsp;document: premature pessimism about reform before the reform process is even complete and before enough postreform growth is available. Later results may show this pessimism to be mistaken, but there is much less interest in evaluating the reforms by that point. This may help explain why it is so difficult to do reforms and why corrections to extremely bad policy outcomes are delayed. Exploring such political‐​economy outcomes would also be a&nbsp;fruitful topic for further research.</p> <p>I show that these changes in policy outcomes—especially changes from extreme policies—were accompanied by growth increases. Policy reforms can explain the growth increases in Africa and Latin America, and old data available through 1998 were indeed consistent with the reform pessimism partly because of weaker results on growth payoffs associated with reform outcomes and partly because less reform had happened.</p> <p>None of these statements resolve causality. But if the earlier stylized facts induced doubts about the value of reform, the new stylized facts should cause some updating of beliefs toward a&nbsp;more positive view of these policy reforms.</p> <p>The new stylized facts seem most consistent with a&nbsp;position between complete dismissal and vindication of the Washington Consensus. Even if the new stylized facts were interpreted as causal, they would still hardly constitute a&nbsp;blanket triumph of the Washington Consensus. And the most robust results only come from the most extreme policy ranges. Even critics of the Washington Consensus might agree that extreme ranges of inflation, black market premiums, overvaluation, negative real interest rates, and repression of trade were undesirable. The finding that moderately bad policies are not very robust predictors of growth could even possibly support a&nbsp;criticism of the Washington Consensus that it was too obsessive about getting policies exactly right.</p> <p>Despite these caveats, the new stylized facts are consistent with a&nbsp;more positive view of reform, compared to the previous consensus on doubting reform. The reform critics (including me) failed to emphasize the dangers of extreme policies in the previous reform literature or to note how common extreme policies were. Even if the reform movement was far from a&nbsp;complete shift to “free market policies,” it at least seems to have accomplished the elimination of the most extreme policy distortions of markets, which is associated with the revival of growth in African, Latin American, and other countries that had extreme policies.</p> <p><strong>NOTE</strong>: <br>This research brief is based on William Easterly, “In Search of Reforms for Growth: New Stylized Facts on Policy and Growth Outcomes,” NBER Working Paper no. 26318, September 2019, <a href="https://www.nber.org/papers/w26318" target="_blank">https://​www​.nber​.org/​p​a​p​e​r​s​/​w​26318</a>.</p> </div> Wed, 20 May 2020 00:00:00 -0400 William Easterly https://www.cato.org/publications/research-briefs-economic-policy/search-reforms-growth-new-stylized-facts-policy-growth COVID-19 Should Make Us Grateful for Technology https://www.cato.org/publications/commentary/covid-19-should-make-us-grateful-technology Marian L. Tupy <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>In&nbsp;a&nbsp;way, everything is technology,” noted one of the world’s greatest economic historians, Fernand Braudel, in his monumental study<em>&nbsp;Civilization and</em>&nbsp;<em>Capitalism</em>. “Not only man’s most strenuous endeavors but also his patient and monotonous efforts to make a&nbsp;mark on the external world; not only the rapid changes … but also the slow improvements in processes and tools, and those innumerable actions which may have no immediate innovating significance but which are the fruit of accumulated knowledge,” he continued. Yes, land, labor, and capital (that’s to say, the factors of production) are important components of economic growth. In the end, however, human progress in general and global enrichment in particular are largely dependent on invention and innovation. That is surely even clearer now that humanity’s hopes for the end of the pandemic and for our liberation from the accompanying lockdown rest on further scientific breakthroughs within the pharmaceutical industry. Let’s take a&nbsp;brief look at the impact of technology on health care, food supply, work, and sociality in the time of COVID-19.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p><strong>HEALTH CARE</strong><br> The impact of modern technology is surely most keenly felt and anticipated within the sphere of human health care. Consider some of the worst diseases that humanity has had to face in the past. Smallpox, which is thought to have killed an estimated 300 million people in the 20th century alone, originated in either India or Egypt at least 3,000&nbsp;years ago. Smallpox variolation, it seems, was practiced in China in the tenth century, but it was not until the late 18th century that Edward Jenner vaccinated his first patient against the disease. Smallpox was fully eradicated only in 1980. Similar stories could be told about other killer diseases. Polio, which can be seen depicted in Egyptian carvings from the 18th dynasty, is of ancient origin. Yet the disease wasn’t properly analyzed until the year of the French Revolution, with Jonas Salk’s vaccine appearing only in 1955. Today, polio is close to being eradicated (just 95 cases were reported in 2019).</p> <p>Malaria, probably humanity’s greatest foe, is at least 30 million years old (the parasite has been found in an amber‐​encased mosquito from the Paleogene period). It was only after the discovery of the New World that knowledge about the fever‐​reducing benefits of the bark of the cinchona tree spread to Europe and Asia. Quinine was first isolated in 1820, and chloroquine was introduced in 1946. Artemisinin drugs, which we still use, were discovered in the late 1970s. That’s to say that humanity lived with deadly diseases for millennia without fully knowing what they were, how they were transmitted, and how they could be cured. The fate of humanity, our ancestors thought, fluctuated under the extraneous influence of the “wheel of fortune” and there was nothing that anyone could do about it. One day you were alive and next day you were not.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Let’s take a&nbsp;brief look at the impact of technology on health care, food supply, work, and sociality in the time of COVID-19. </p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Contrast that glacial pace of progress, and the fatalistic acceptance of disease and death, with our response time to the current pandemic. The Wuhan Municipal Health Commission reported the existence of a&nbsp;cluster of cases of “pneumonia” in Wuhan on December 31. On January 7&nbsp;the Chinese identified the pathogen (novel coronavirus) responsible for the outbreak. On January 11 China sequenced the genetic code of the virus, and the next day it was publicly available. That enabled the rest of the world to start making diagnostic kits to identify the disease. To take one example, the first COVID-19 infection in South Korea was identified on January 20. On February 4, the first test kit (made by Kogene Biotech) entered production. On February 7, the test kit was available at 50 locations around the country. Other countries followed suit.</p> <p>The World Health Organization, which declared COVID-19 a&nbsp;global pandemic on March 11, may have acted too late. Still, it is noteworthy that just two months expired between the first sign of trouble and the time when the entire world put measures in place to retard the spread of the disease. In the meantime, we have learned a&nbsp;lot about governmental incompetence and regulatory overreach. But we have also learned a&nbsp;great deal about the spread and symptoms of the disease. Instead of starting from scratch, medical specialists in Europe and America can draw on the expertise of their colleagues in the Far East. Before the telegraph appeared midway through the 19th century, it took up to a&nbsp;month for a&nbsp;ship to carry information from London to New York. Today, we learn about the latest COVID-19 news (good and bad) and research in seconds.</p> <p>By mid April, thousands of highly educated and well‐​funded specialists throughout the world were using supercomputers and artificial intelligence to identify promising paths toward victory over the disease. Some 200 different programs are underway to develop therapies and vaccines to combat the pandemic. They include studies of the effectiveness of existing antiviral drugs, such as Gilead’s Remdesivir, Ono’s protease inhibitor, and Fujifilm’s favipiravir. The effectiveness of generic drugs, such as hydroxychloroquine and chloroquine, is also being evaluated. Takeda is hard at work on convalescent plasma (TAK-888) in Japan, while Regeneron works on monoclonal antibodies in the United States. New vaccines, such as Moderna’s mRNA‐​1273, Inovio’s INO-4800, and BioNTech’s BNT162, are under development.</p> <p>We don’t know which of these treatments (if any) will work, but here is what we can be sure of: There has never been a&nbsp;better time for humans to face and defeat a&nbsp;global pandemic. The world is richer than ever before, and money is what enables us to sustain a&nbsp;massive pharmaceutical industry and pay for highly sophisticated medical research and development. Coronavirus may be deadly, but it is not the bubonic plague, which had a&nbsp;mortality rate of 50 percent. Luckily, it is a&nbsp;far milder virus that has reawakened us to the danger posed by communicable diseases. Once the immediate crisis is behind us, researchers will collect billions of data from dozens of countries and analyze the different governmental responses to the pandemic. That knowledge will be deployed by governments and the private sector to ensure that best practices are adopted, so that next time we are better prepared.</p> <p><strong>FOOD</strong><br> When the Black Plague struck Europe in 1347, the disease found the local population ripe for slaughter. Following the close of the Medieval Warm Period at the end of the 13th century, the climate turned cold and rainy. Harvests shrunk and famines proliferated. France, for example, saw localized famines in 1304, 1305, 1310, 1315–17, 1330–34, 1349–51, 1358–60, 1371, 1374–75, and 1390. The Europeans, weakened by shortages of food, succumbed to the disease in great numbers.</p> <p>The people of yore faced at least three interrelated problems. First, the means of transport and the transportation infrastructure were awful. On land, the Europeans used the same haulage methods (carts pulled by donkeys, horses, and oxen) that the ancients had invented. Similarly, much of Europe continued to use roads built by the Romans. Most people never left their native villages or visited the nearest towns. They had no reason to do so, for all that was necessary to sustain their meager day‐​to‐​day existence was produced locally. The second problem was the lack of important information. It could take weeks to raise the alarm about impending food shortages, let alone organize relief for stricken communities. Third, regional trade was seldom free (France did not have a&nbsp;single internal market until the Revolution) and global trade remained relatively insignificant in economic terms until the second half of the 19th century. Food was both scarce and expensive. In 15th‐​century England, 80 percent of ordinary people’s private expenditure went for food. Of that amount, 20 percent was spent on bread alone. Under those circumstances, a&nbsp;local crop failure could spell the destruction of an entire community. (Those who think that COVID-19 exposed the fragility of modern society should look up the Great Famine.)</p> <p>By comparison, by 2013 only 10 percent of private expenditure in the United States was spent on food, a&nbsp;figure that is itself inflated by the amount Americans typically spend in restaurants. Speaking of restaurants, while most have been forced to close their doors, the restaurateurs use apps to deliver excellent food at reasonable prices. Moreover, months into the COVID-19 pandemic, the shops are, generally, well stocked and regularly replenished by the largely uninterrupted stream of cargo flights, truck hauling, and commercial shipping. Due to the miracle of mobile refrigeration, fresh produce continues to be sourced from different parts of the United States and abroad. Shortly before writing this piece, I&nbsp;was able to buy oranges from California, avocados from Mexico, and grapes from Chile in my local supermarket. Globalization may be under pressure from both the left and the right of the U.S. political spectrum, but should the pandemic impair U.S. agricultural production, many will be forced to acknowledge the benefits of the global food supply and our ability to import food from COVID‐​19‐​unaffected parts of the world.</p> <p>This extensive and, at this point, still sturdy supply chain is, of course, a&nbsp;technological marvel. Computers collate information about items on the shelf that are in short supply, adjust the variety and quantity of items shipped between stores, fill new orders, etc. And so, commerce that’s still allowed to go on goes on. So does charity. Feeding America, a&nbsp;network of more than 200 food banks, feeds tens of millions of people through food pantries, soup kitchens, shelters, etc. Since 2005, the organization has been using a&nbsp;computerized internal market to allocate food more rationally. Feeding America uses its own currency, called “shares,” with which individual food banks can bid on the foods that they need the most. Grocery‐​delivery services bring food to the doorsteps of those who cannot or do not want to leave their homes. The old and the infirm can also use phones, emails, and apps to call upon volunteers to do their shopping and delivery.</p> <p><strong>WORK</strong><br> The nature of work has changed a&nbsp;lot over the last 200&nbsp;years or so. Before the industrial revolution, between 85 percent and 90 percent of the people in the Western world were farm laborers. Their work was excruciatingly difficult, as witnessed by one 18th‐​century Austrian physician who observed that “in many villages [of the Austrian Empire] the dung has to be carried on human backs up high mountains and the soil has to be scraped in a&nbsp;crouching position; this is the reason why most of the young people are deformed and misshapen.” People lived on the edge of starvation, with both the very young and the very old expected to contribute as much as they could to the economic output of the family (most production in the pre‐​modern era was based on the family unit, hence the Greek term&nbsp;<em>oikonomia</em>, or household management). In those circumstances, sickness was a&nbsp;catastrophe: It reduced the family unit’s production, and therefore its consumption.</p> <p>The industrial revolution allowed people to move from farms to factories, where work was better paid, more enjoyable, and less strenuous (which is largely why people in poor countries continue to stream from agricultural employment to manufacturing jobs today). Moreover, wealth exploded (real annual family income in the United States rose from $1,980&nbsp;in 1800 to $53,018&nbsp;in 2016). That allowed for ever‐​increasing specialization, which included a&nbsp;massive expansion of services catering to the desires of an ever‐​more‐​prosperous population. The service sector today consists of jobs in the information sector, investment services, technical and scientific services, health care, and social‐​assistance services, as well as in arts, entertainment, and recreation. Most of these jobs are less physically arduous, more intellectually stimulating, and better paid than either agricultural or manufacturing jobs ever were. Crucially, many of these service‐​sector jobs can be performed remotely. That means that even in the midst of the government‐​imposed economic shutdown, some work (about a&nbsp;third, estimates suggest) can go on. The economic losses from COVID-19, in other words, will be astronomical, but not total.</p> <p>My own organization, for example, shut its doors in mid March. Since then, everyone has been scribbling away at home or appearing on news shows around the world via the Internet. All of us are in regular contact via the phone, Zoom, and Microsoft Teams. Other organizations are doing the same. As we already discussed, a&nbsp;great deal of shopping is taking place online. Shipping and delivery companies are expanding, with Amazon hiring 100,000 additional workers in the United States. Home entertainment, of course, has grown tremendously, with Netflix adding millions of new customers and expanding its offerings with thousands of new films and television shows. With over 30 million American children stuck at home, online learning companies are booming, and educators from high‐​school teachers to college professors continue to perform their jobs remotely. Telehealth is expanding, allowing patients to see their doctors in a&nbsp;safe and convenient way. Even minor medical procedures, such as eye exams, can be conducted remotely, and multiple companies will deliver your new specs to your front door. Banking and finance are still going on, with many people taking advantage of low interest rates to refinance their mortgages. Finally, the often unfairly maligned pharmaceutical industry is expanding as we all wait and hope for the release of a&nbsp;COVID-19 vaccine or effective therapeutic treatment.</p> <p><strong>SOCIALITY</strong><br> Aristotle observed that “man is by nature a&nbsp;social animal” and noted that without friends we would be unhappy. But the role of sociality (that is to say, the tendency to associate in or form social groups) goes much deeper than that. As William von Hippel explained in his 2018 book&nbsp;<em>The Social Leap</em>, sociality is the mechanism by which&nbsp;<em>Homo sapiens</em>&nbsp;came about. When early hominids were forced down from the trees (perhaps as a&nbsp;result of a&nbsp;climatic change that dried up African forests), they became more vulnerable to predators. To cover longer distances between the fast‐​disappearing trees while maintaining a&nbsp;modicum of protection against other animals, our ancestors developed bipedalism, which allowed them to free their upper body to carry weapons such as sticks and stones.</p> <p>Even more important was the invention of cooperation. While a&nbsp;stick‐​wielding ape is slightly better‐​off than an unarmed one, a&nbsp;group of armed apes is much better at dispatching predators. Individuals in more cooperative bands survived to adulthood and bred more often, resulting in more‐​cooperative species. Furthermore, since living alone was tantamount to a&nbsp;death sentence, selfish apes who didn’t care about being ostracized for not pulling their weight died off, resulting in a&nbsp;desire for communal cooperation and a&nbsp;deep‐​rooted fear of rejection by the group.</p> <p>The early hominids had brains more like those of chimps than those of modern humans. That’s because the evolutionary pressures that created the former — such as predation and food scarcity — could be overcome without tremendous intelligence. These pressures to survive were part of the physical landscape — a&nbsp;challenging but static environment that didn’t require a&nbsp;lot of cognitive ability to navigate. The environmental pressure that resulted in modern humans was the social system itself. The social landscape is much more dynamic than the physical one. Once they had banded together in groups, our ancestors were forced to forge relationships with, and avoid being exploited by, individuals with divergent and constantly shifting interests. Those who couldn’t keep up with the increasingly complex social game either died or were unable to mate.</p> <p>This new pressure created a&nbsp;positive evolutionary cycle: Banding together created more complex social systems, which required bigger brains; bigger brains needed to be fed; and the best way to get more food was more cooperation and a&nbsp;more sophisticated social system. The main cognitive development that evolved from this evolutionary cycle is known as the “theory of mind.” In short, the theory of mind is the ability to understand that other minds can have different reasoning, knowledge, and desires from your own. While that seems basic, the theory of mind distinguishes us from all other life on Earth. It allows us to determine whether an affront, for example, was intentional, accidental, or forced. It allows us to feel emotions such as empathy, pride, and guilt — abilities that are keys to a&nbsp;functioning society.</p> <p>So sociality and human beings are inseparable, as we have all been clearly reminded by the sudden restrictions on our ability to interact with others. As we sit at home, working away on our computers or watching television, most of us feel a&nbsp;tremendous sense of isolation (“social distancing”) from our family, friends, and colleagues. The urge to be around others is innate to us. It is who we are. Dissatisfied with impersonal modes of communication, such as email and texting, we have rediscovered the need for a&nbsp;face‐​to‐​face interaction with our fellow humans. To that end, we utilize digital platforms such as Zoom, Google Hangouts, Facebook Live, and FaceTime to catch up on the latest news in other people’s lives, or simply to complain about the misery of loneliness and the pathetic inadequacy of our public officials (of both parties). Throughout the nation, people engage in virtual happy hours, dinners, book clubs, fitness classes, religious services, and group meditation. As my Cato Institute colleague Chelsea Follett recently wrote, “Technology has made it easier than ever to hold a&nbsp;physically‐​distanced ‘watch party’ synchronized so that viewers in different locations see the same part of a&nbsp;movie at the same time. For those who like to discuss movies as they watch, technology also enables a&nbsp;running group commentary of each scene in real time.” In the saddest of cases, technology enables people to say goodbye to dying friends and relatives. In a&nbsp;very real sense, therefore, technology keeps us sane (or, at the very least, saner).</p> <p>Technology, then, allows us to cope with the challenges of the pandemic in ways that our ancestors could not even dream about. More important, technology allows our species to face the virus with grounds for rational optimism. In these dark days, remember all the scientists who are utilizing the accumulated store of human knowledge to defeat COVID-19&nbsp;in record time and all the marvelous (not to say miraculous) ways the modern world keeps us well fed, psychologically semi‐​balanced, and (in many cases) productively engaged.</p> </div> Thu, 30 Apr 2020 08:56:47 -0400 Marian L. Tupy https://www.cato.org/publications/commentary/covid-19-should-make-us-grateful-technology Cato’s Human Freedom Index is cited on Money Radio’s The Small Business Advocate Show https://www.cato.org/multimedia/media-highlights-radio/catos-human-freedom-index-cited-money-radios-small-business Fri, 24 Apr 2020 10:55:22 -0400 Cato Institute, Ian Vásquez, Tanja Porčnik https://www.cato.org/multimedia/media-highlights-radio/catos-human-freedom-index-cited-money-radios-small-business Swaminathan S. Anklesaria Aiyar discusses India’s low economic growth rate on The Economic Times https://www.cato.org/multimedia/media-highlights-tv/swaminathan-s-anklesaria-aiyar-discusses-indias-low-economic-growth Fri, 28 Feb 2020 10:35:45 -0500 Swaminathan S. Anklesaria Aiyar https://www.cato.org/multimedia/media-highlights-tv/swaminathan-s-anklesaria-aiyar-discusses-indias-low-economic-growth Human​progress​.org is cited on The Lars Larson Show https://www.cato.org/multimedia/media-highlights-radio/humanprogressorg-cited-lars-larson-show Wed, 26 Feb 2020 12:43:11 -0500 Cato Institute https://www.cato.org/multimedia/media-highlights-radio/humanprogressorg-cited-lars-larson-show What Are the World’s Saddest (and Happiest) Countries? https://www.cato.org/publications/commentary/what-are-worlds-saddest-happiest-countries Steve H. Hanke <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>The human condition lies on a&nbsp;vast spectrum between “miserable” and “happy.” In the economic sphere, misery tends to flow from high inflation, steep borrowing costs, and unemployment. The most surefire way to mitigate that misery is through economic growth. All else being equal, happiness tends to blossom when growth is strong, inflation and interest rates are low, and jobs are plentiful.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Many countries measure and report these economic metrics regularly. Comparing them, nation by nation, can tell us a&nbsp;lot about where in the world people are sad or happy.</p> <p>Is Japan, for example, more or less miserable than other countries? To answer this question, I&nbsp;updated the measurements for Hanke’s Annual Misery Index (HAMI).</p> <p>The first Misery Index was constructed by economist Arthur Okun in the 1960s to provide President Lyndon Johnson with an easily digestible snapshot of the economy. That original Misery Index was a&nbsp;simple sum of a&nbsp;nation’s annual inflation rate and its unemployment rate. The Index has been modified several times, first by Robert Barro of Harvard, and then by me.</p> <p>My modified Misery Index is the sum of the unemployment, inflation, and bank‐​lending rates, minus the percentage change in real GDP per capita. Higher readings on the first three elements are “bad” and make people more miserable. These are offset by a “good” (GDP per capita growth), which is subtracted from the sum of the “bads.” A&nbsp;higher Misery Index score reflects a&nbsp;higher level of “misery.” It’s a&nbsp;simple enough metric that can be understood at a&nbsp;glance. The accompanying table contains Misery Index rankings for the 95 nations that report relevant data on a&nbsp;timely basis.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <img width="700" height="586" alt="Hanke Misery Index Article 2020" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/pubs/public/2020-02/hanke-nationalreview-2-26-2020-1.png?itok=HJnEyUp6 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-02/hanke-nationalreview-2-26-2020-1.png?itok=Wfxu3eFx 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/2020-02/hanke-nationalreview-2-26-2020-1.png?itok=HJnEyUp6" typeof="Image" /> </div> </figure> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Let’s start with three of the least miserable countries and work down into the pits.</p> <p><strong>Japan </strong>takes the prize as the world’s least miserable country, moving up from the third‐​least miserable <a href="https://www.cato.org/publications/commentary/hankes-annual-misery-index-2018-worlds-saddest-happiest-countries" rel="noopener noreferrer" target="_blank">in 2018</a>. It’s no surprise that prime minister Shinzo Abe remains firmly in the saddle.</p> <p><strong>Hungary </strong>delivers yet another stunner. It ranks as the second‐​least miserable country in the world. While the European Union and the international elites have thrown everything they can at prime minister Viktor Orban, it’s easy to see why he commands a&nbsp;strong following at home. After all, the Magyars held the second‐​happiest spot in the world in 2018 as well.</p> <p><strong>Thailand</strong> has slipped from the least miserable country in the world in 2018 to the third‐​least miserable in 2019. The military junta delivered happiness in 2018 and 2019, and as a&nbsp;result, the pro‐​military PPRP was rewarded at the polls.</p> <p>On the bright side, buried in the HAMI table are two countries that improved (reduced misery) the most: Mauritius and Papua New Guinea. Due to a&nbsp;plunge in its annual inflation rate in 2019, Mauritius moved from 31<sup>st</sup> to 51<sup>st</sup> most miserable — a&nbsp;significant improvement. Papua New Guinea also rose in happiness and thus in the rankings, moving from 29<sup>th</sup> in 2018 to 49<sup>th</sup> in 2019. This was largely because GDP growth swung from a&nbsp;contracting -3.1 percent per year to an expanding 2.8 percent per year.</p> <p>Now, let’s take a&nbsp;deep dive into the bottom of the pits.</p> <p><strong>Venezuela</strong> holds the inglorious title of the most miserable country in the world in 2019, as it did in 2018, 2017, 2016, and 2015. The failures of president Nicolás Maduro’s corrupt, socialist petroleum state have been well documented over the past year. However, behind the shroud of secrecy that covers Venezuela, a&nbsp;great deal of change occurred in the components of HAMI in 2019. Inflation, while still the world’s highest, came down. On the other hand, the unemployment rate surged to 24 percent from 14.9 percent in 2018, while GDP per capita took a&nbsp;dive from -16.5 percent per year to -32.2 percent per year.</p> <p><strong>Argentina</strong> held down the second‐​most miserable spot after yet another peso crisis. Since its founding, Argentina has endured numerous economic crises. Most can be laid at the feet of domestic mismanagement and currency problems (read: currency collapses). Such crises have occurred in 1876, 1890, 1914, 1930, 1952, 1958, 1967, 1975, 1985, 1989, 2001, 2018, and 2019, to name but a&nbsp;few. Until Argentina dumps the beleaguered peso and replaces it with the U.S. dollar, it will be, well … miserable.</p> <p><strong>Iran</strong>, our No. 3, is, like Argentina, burdened with the weight of a&nbsp;non‐​credible central bank and a&nbsp;junk currency. The only way out is to make the rial as good as gold with a&nbsp;gold‐​backed currency board.</p> <p><strong>Brazil </strong>held down the fourth‐​most miserable spot in the ranking. As my close friend Roberto Campos — the late Brazilian economist, diplomat, and politician — once explained to me: The Brazilian Constitution is as thick as the New York City telephone book and is full of little more than rights and entitlements. President Bolsonaro has his work cut out for him. To improve his country’s ranking, he will have to deliver more than his recent pension reforms.</p> <p>The two biggest negative moves in 2019 were Pakistan and Moldova, with Pakistan sliding from the 34<sup>th</sup> most miserable in 2018 to the 11<sup>th</sup> most miserable in 2019. For its part, Moldova moved from the 66<sup>th</sup> most miserable country in 2018 to the 35<sup>th</sup> in 2019.</p> <p>Countries’ national attitudes have a&nbsp;vast range of overall conditions by my metric. But the currently most miserable should take heart that it is possible to improve. And the currently least miserable should note that they, too, can fall into despair.</p> </div> Wed, 26 Feb 2020 12:37:02 -0500 Steve H. Hanke https://www.cato.org/publications/commentary/what-are-worlds-saddest-happiest-countries Michael Munger gives a lecture on the topic, “Is Capitalism Sustainable?,” at an event hosted by the Institute for Humane Studies https://www.cato.org/multimedia/media-highlights-tv/michael-munger-gives-lecture-topic-capitalism-sustainable-event Thu, 20 Feb 2020 13:18:09 -0500 Michael Munger https://www.cato.org/multimedia/media-highlights-tv/michael-munger-gives-lecture-topic-capitalism-sustainable-event Human Freedom Index is cited on FOX’s Fox & Friends https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-is-cited-on-fox Tue, 11 Feb 2020 10:36:50 -0500 Ian Vásquez, Tanja Porčnik https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-is-cited-on-fox Saving the Small Town without Big Government https://www.cato.org/publications/commentary/saving-small-town-without-big-government Chelsea Follett <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>So‐​called “deaths of despair” in rural areas — from drug overdoses and suicide — have become so common that they have even affected our national life expectancy figures. Life expectancy in the United States has fallen for three years in a&nbsp;row. That is a&nbsp;reversal not seen since 1918 (during a&nbsp;<a href="https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html" target="_blank">pandemic</a>) or in any other wealthy nation in modern times, as Nobel‐​prize winning economist Angus Deaton has&nbsp;<a href="https://www.amazon.com/Deaths-Despair-Future-Capitalism-Anne/dp/069119078X" target="_blank">pointed out</a>.&nbsp;What should be done?</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Small town woes in many areas can be traced to the erosion of manufacturing jobs. A&nbsp;typical example is Lordstown, Ohio (population 3,300) which&nbsp;<a href="https://www.nytimes.com/interactive/2019/05/01/magazine/lordstown-general-motors-plant.html" target="_blank">revolved</a>&nbsp;around a&nbsp;now‐​shuttered manufacturing plant for 50&nbsp;years. “The feeling in the plant my last day was eerie, because nobody knew what to say,” noted a&nbsp;metal assembly worker employed at the Lordstown factory for 22&nbsp;years until it closed.</p> <p>Economists like Erika‐​Grace Davies&nbsp;<a href="https://www.amazon.com/Need-Humility-Policymaking-Lessons-Regulatory/dp/178661135X" target="_blank">advise</a>&nbsp;small towns to create “an institutional environment that promotes productive entrepreneurship and market competition [so that] they can maintain progress and resiliency,” even when old industries fade.&nbsp;That approach differs from the&nbsp;growing chorus of respected writers and renowned&nbsp;<a href="https://time.com/4677919/tyler-cowen-book/" target="_blank">economists</a>&nbsp;suggesting that Americans in dying towns should pack up and move from depressed areas to booming ones.</p> </div> , <aside class="aside--right aside--large aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>For a&nbsp;small town to flourish, it must become a&nbsp;place where free enterprise flourishes as well.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Leaving may be a&nbsp;good idea in some cases, but many people would prefer not to move. A&nbsp;recent Gallup&nbsp;<a href="https://news.gallup.com/poll/245249/americans-big-idea-living-country.aspx" target="_blank">poll</a>&nbsp;found that 27 percent of Americans would like to live in a&nbsp;rural area — more than chose any other option. “I don’t want to let our house go, but it has to be done,”&nbsp;<a href="https://www.nytimes.com/interactive/2019/05/01/magazine/lordstown-general-motors-plant.html" target="_blank">stated</a>&nbsp;one former Lordstown factory worker sadly during an interview last year, gazing at the farmhouse where she grew up.</p> <p>With the right legal and regulatory institutions, a&nbsp;small town can encourage entrepreneurs to open businesses. Research has&nbsp;<a href="https://journals.sagepub.com/doi/abs/10.1177/0891242414559070" target="_blank">found</a>&nbsp;that the strength of the local economy is a&nbsp;top factor in the decisions of Iowans to return to their rural hometowns after college. Remote work is also often a&nbsp;factor, and as advancing technology makes remote education and work feasible for an ever‐​growing share of the population, it could help reinvigorate rural areas.</p> <p>Small towns can be hubs for entrepreneurship of&nbsp;<a href="https://thehill.com/opinion/campaign/430869-unleash-the-untapped-talent-of-rural-entrepreneurs" target="_blank">many kinds</a>: an accounting company founded in Clear Lake, Iowa (population 7,700), has grown to several hundred employees while maintaining its small‐​town headquarters. A&nbsp;software company founded in Stowe, Vermont (population 4,300) now employs more than a&nbsp;hundred people in two rural locations.</p> <p>Creating economic growth through the bottom‐​up flourishing of businesses is much more sustainable than the short‐​term stimulus packages supported by the&nbsp;<a href="https://www.cato.org/research/manufacturing-industrial">confused</a>&nbsp;advocates of a&nbsp;return of so‐​called “industrial policy.” The government has already spent billions of dollars trying to draw jobs and prosperity to stagnant rural areas, to no avail. Recent tariffs intended to help U.S. workers are actually&nbsp;<a href="https://www.cato.org/blog/gains-deregulation-undone-tariffs">harming</a>&nbsp;the U.S. manufacturing industry. In fact, the U.S. manufacturing sector has been producing record‐​setting output year‐​after‐​year and does not need rescuing — except from the tariffs. The industry employs fewer people because more jobs can now be done by machines.</p> <p>An upswell of entrepreneurship is only possible when policymakers take a&nbsp;strong stand against cronyism and lobbying by established businesses designed to undermine new enterprises and innovative competitors.</p> <p>Davies’ research shows that Williamsport, Pennsylvania (population 28,300) once had the most millionaires per capita of any city in the United States, during the lumber boom of the 1800s. But the local government backed a&nbsp;single lumber company, giving it an effective monopoly. That mistake ultimately decreased entrepreneurship and harmed Williamsport’s economy, which has only recently revived thanks to the fracking boom. When local governments resist rent‐​seeking behavior, entrepreneurs are then able to innovate and draw new wealth into the town.</p> <p>Some towns, residents will decide, are worth saving. Even the most committed urbanite would be hard‐​pressed to deny the charm, tranquility, natural beauty, and neighborly goodwill that can often be found in villages, small towns and other rural locales.</p> <p>As cities grow, many small towns will fade away. Each small town’s fate will ultimately be decided by its residents: they may vote with their feet by moving away, or they may stay and attempt to revive their communities. If they choose the latter option, they should strongly consider the following advice: for a&nbsp;small town to flourish, it must become a&nbsp;place where free enterprise flourishes as well.</p> </div> Sat, 08 Feb 2020 08:19:44 -0500 Chelsea Follett https://www.cato.org/publications/commentary/saving-small-town-without-big-government The Core Challenge That Johnson’s Government Won’t Face up To. Boosting Growth https://www.cato.org/publications/commentary/core-challenge-johnsons-government-wont-face-boosting-growth Ryan Bourne <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>Boris Johnson famously wants to “unleash Britain’s potential.” But where economic growth is concerned, the&nbsp;<a href="https://www.bankofengland.co.uk/monetary-policy-report/2020/january-2020/in-focus-supply-and-spare-capacity" target="_blank">Bank of England</a>&nbsp;thinks the problem is too little potential in the first place.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Last week, it revised down “potential output growth” for the next three years, from 1.4 per cent to 1.1 per cent per year, implying less capacity for growth without overheating. That’s a&nbsp;stark contrast with the historic 2.8 per cent growth rate that&nbsp;<a href="https://www.ft.com/content/f2fe8ce2-3c6c-11ea-b232-000f4477fbca" target="_blank">Sajid Javid aspires a</a>&nbsp;return to.</p> <p>Potential growth is calculated by making judgments on potential additional hours worked economy‐​wide and on potential labour productivity growth (i.e. improvements in output per hour worked). On both, the Bank’s judgment is grisly.</p> <p>With unemployment low, employment high, and EU immigration slower, the Bank revised down growth attainable by simply adding people or hours. More worryingly, it has given up expecting a&nbsp;productivity growth rebound, instead judging our post‐​crash performance a&nbsp;kind of “new normal.” For 2020–23, it expects productivity growth of 0.5 percent per year; far below the 2.2 per cent per year seen pre‐​crash or even the above one per cent forecast last year.</p> <p>If this seems dry and arcane, the implications are not. If accurate, worse potential growth driven by weak productivity means less robust improvements in living standards, a&nbsp;worse “structural” budget deficit, and macroeconomic “stimulus” becoming more impotent. Indeed, trying to “boost the economy” through Government spending or monetary stimulus would more likely just generate inflation.</p> <p>As Javid prepares for his March Budget then, the Bank’s verdict should trouble him. Last March,&nbsp;<a href="https://obr.uk/efo/economic-fiscal-outlook-march-2019/" target="_blank">the Office for Budget Responsibility</a>&nbsp;itself forecast potential growth at 1.5 per cent for 2020, rising to 1.6 per cent through 2023. But that assumed productivity growth jumping to 1.3 per cent per year. If the OBR now agrees that 0.5 per cent is likelier, Budget day will bring terrible economic headlines.</p> <p>Now we should not take the Bank’s judgment as gospel, of course. Economists understand less about “potential” than reporting suggests. Defining “capacity” for companies, let alone large economies, is hard.&nbsp;<a href="https://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2019/03/against-the-output-gap.html" target="_blank">As Chris Dillow has written</a>, in a&nbsp;world of intangible assets and digital technologies it’s not even clear what capacity means. What is Google’s “capacity”? The Bank may prove as unduly pessimistic as it recently was overoptimistic.</p> <p>But that doesn’t make its intervention unimportant.&nbsp;<a href="https://www.nber.org/papers/w23160" target="_blank">Olivier Blanchard, Guido Lorenzoni and Jean Paul L’Huillier’s work</a>&nbsp;suggests negative judgments from forecasters about potential growth can become self‐​fulling. If consumers and investors expect to be poorer, they might cut their cloth now. They find, internationally, that a&nbsp;0.1 per cent downward revision to potential growth leads to a&nbsp;fall in consumption growth that year of anywhere between 0.4 and 0.7 per cent. Just what the Chancellor needs.</p> <p>Few can deny too the problem that the Bank’s revised judgment reflects. As years since the financial crisis roll by, it becomes ever easier to conclude that Britain is in a&nbsp;productivity growth slump with no sign of returning to pre‐​crash trends. The question really is: does the government intend to do anything meaningful about it?</p> <p>It feels tired to posit this question. Commentators like me having been making the case for trying to&nbsp;<a href="https://www.cps.org.uk/media/media-coverage/q/date/2013/03/20/cps-budget-reaction-the-good-the-bad-and-the-ugly/" target="_blank">raise the potential growth rate</a>&nbsp;since 2010, to little avail. Partly this reflects a&nbsp;helplessness from policymakers in the face of trends beyond their control; partly it’s disagreements about what pro‐​growth policy is.</p> <p>So let’s recognise uncomfortable truths upfront. Yes, slower growth across countries since the crash suggests something about the bank crisis or the unsustainability of what went before has impaired growth. Yes, an ageing population is another headwind. And, yes, Brexit has slowed growth to date, though how much due to pure “uncertainty” chilling investment, as opposed to negative expectations about future trade policy, is unclear.</p> <p>But acknowledging all this shouldn’t induce fatalism. In fact, it strengthens the imperative for other pro‐​growth policies in recompense. We shouldn’t just treat the economy’s weak potential as a&nbsp;fait accompli — an unwelcome external force that affects budgets. No, given its importance, we should see weak growth as a&nbsp;failure of collective current policy. At the very least, sustained poor growth gives reason to review programmes tolerable in “good times” that we suspect come with a&nbsp;growth trade‐​off.</p> <p>Is the government really prioritising growth today? Javid’s ambition is commendable, but actions must follow words. Prioritising something means willingness to accept trade‐​offs in its pursuit. Yet last week, ministers were asked to consider cutting programmes that didn’t fulfil the Government’s stated priorities — tackling crime, funding the NHS, or “levelling up” regions. Growth got no mention. Indeed, if growth is a&nbsp;priority, why not ask “does this programme improve the economy’s potential?”</p> <p>Often, it seems that the Government thinks talking about any economic policy is synonymous with being pro‐​growth. But, listening to recent announcements, it’s difficult to conclude that rapid growth is a&nbsp;guiding star.</p> <p>True, in some areas people like me just disagree with them on what might boost growth — little surprise given how contentious the literature is. Dominic Cummings thinks a&nbsp;British ARPA will generate loads of spillovers from public science and R&amp;D spending. Javid thinks a&nbsp;further education skills push will raise human capital in the long‐​term. The whole government seems sold on regional infrastructure being transformative (Japan through the 1990s colours me sceptical). We can debate this, while recognising that government noises on planning have been well‐​evidenced and unambiguously pro‐​growth.</p> <p>In other areas though, growth is clearly a&nbsp;secondary concern, at best. No coherent tax reform agenda appears likely, and Ministers are prioritising a&nbsp;broad‐​based National Insurance cut that will do little for potential growth. Boris Johnson talks up the benefits of using regulation to strengthen environmental outcomes and worker protection; there’s little mention of growth trade‐​offs here, or a&nbsp;pro‐​growth review of repatriated EU laws.</p> <p>Though Johnson laments mercantilists and tariffs, last week his government briefed on using them to encourage countries to make trade deals with it — an approach that has seen Donald Trump cripple U.S. manufacturing productivity by raising its input prices. Public service reform ideas seem non‐​existent. The minimum wage keeps being raised. On infrastructure, HS2 is being prioritised over schemes with bigger estimated economic bang for the pound. And whatever your view of climate change, it’s undeniable that rapid decarbonisation impairs an economy’s growth potential, despite fairytales of win‐​win “green growth.”</p> <p>Now, setting all dials to maximise growth is neither easy nor politically viable. Governments, understandably, have other aims and electoral mandates. But given its central importance — not least how it can make all other challenges easier — it still gets insufficient attention. With the government’s healthy majority, anti‐​growth headwinds, and leaving the EU, there’s surely never been a&nbsp;more necessary or better time to act on the Bank’s warning and try to see what sticks.</p> </div> Wed, 05 Feb 2020 10:49:24 -0500 Ryan Bourne https://www.cato.org/publications/commentary/core-challenge-johnsons-government-wont-face-boosting-growth The Transportation‐​Communication Revolution: 50 Years of Dramatic Change in Economic Development https://www.cato.org/cato-journal/winter-2020/transportation-communication-revolution-50-years-dramatic-change-economic Joseph Connors, James D. Gwartney, Hugo M. Montesinos <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>The Industrial Revolution is a&nbsp;remarkable economic event in world history. It marked the dividing line between the old world of subsistence income levels and the new world of sustained economic growth. Beginning around 1800, technology, machines, and capital formation were finally able to outrun population growth, leading to sustained increases in both income levels and life expectancy.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Currently, the world is in the midst of a second economic revolution that is both broader and stronger than the Industrial Revolution, but few are aware of it. During the past half century, expansion in international trade, increased entrepreneurial activities, improvements in economic institutions, and changes in demographics have triggered a remarkable increase in the living standards of people throughout the world. This article will explain the origins and impact of the current economic revolution — the Transportation‐​Communication Revolution — and compare it with the Industrial Revolution.</p> <p>For centuries prior to 1800, changes in lifestyles and living standards were minimal. Most people worked sunup to sundown trying to provide enough food, shelter, and clothing for survival. The child mortality rate was high and life expectancy was short, hovering around 25 years by 1800. Most everyone was poor and they spent their entire life within a few miles of where they were born. It was against this backdrop that the renowned English economist, Thomas Malthus (1798), argued that income could never rise much above subsistence level: if it did, population growth would expand rapidly and soon drive living standards back to subsistence levels.</p> <p id="pn1">However, even as Malthus was writing, forces were present that would prove him wrong, at least in the case of those living in Western Europe, North America, and Oceania. <a href="#tbl9_1">Table 1</a> presents the change in per capita income levels, in 2011 purchasing power parity dollars, of the 21 high‐​income countries (16 Western European countries, Canada, the United States, Australia, New Zealand, and Japan) and the rest of the world over the course of the past 500 years as derived from the classic dataset of Angus Maddison (<a href="#ref012">Maddison 2007</a>; <a href="#ref001">Bolt et al. 2018</a>).<sup><a href="#en1">1</a></sup> In 1820, the per capita income of the high‐​income group was $1,461, slightly more than 50 percent higher than it was in 1500. The per capita GDP for the rest of the world in 1820 was $816, less than 5 percent higher than it was in 1500. In 1820, the per capita GDP of the high‐​income countries was only 80 percent greater than it was for the rest of the world. The low and stagnating per capita income levels prior to 1820 clarify why Malthus, writing in 1798, believed that per capita income would never rise much above the subsistence level.</p> <p align="center" id="tbl9_1"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-1.jpg" class=" lozad" /></p> <p>Around 1800, however, the Industrial Revolution began to transform the world. This was certainly true for the 12 to 15 percent of the world’s population living in the West and Japan. As <a href="#tbl9_1">Table 1</a> shows, per capita GDP in these areas rose from $1,461 in 1820 to $2,506 in 1870 and $5,413 in 1913. By 1950, the per capita GDP in these regions had soared to $8,469, an increase of 480 percent in 130 years.</p> <p>But the change was much less transformative elsewhere. During the 130 years from 1820 to 1950, per capita GDP of the developing countries outside of Sub‐​Saharan Africa rose from $816 to $1,367, an increase of only 68 percent — less than a half of a percent annually. Moreover, the $1,367 per capita GDP of these countries in 1950 was even lower than the $1,461 per capita income of the high‐​income countries in 1820. These figures show that while the Industrial Revolution triggered growth in the West, its impact on the 85 percent of the population living elsewhere in the world was minimal. People in these countries did a little better during this period than prior to 1800, but not much.</p> <p>The situation has changed dramatically during the past half century, first for developing countries outside of Sub‐​Saharan Africa and more recently for Sub‐​Saharan Africa (<a href="#ref019">Sala‐​i‐​Martin and Pinkovskiy 2010</a>). As <a href="#tbl9_1">Table 1</a> shows, per capita GDP of the developing countries outside of Sub‐​Saharan Africa rose from $1,698 in 1960 to $11,015 in 2015, a whopping increase of 549 percent. This increase in just 55 years was even larger than the increase in per capita GDP of the high‐​income countries during the 130 years following 1820. Moreover, there are signs of change in Africa. The per capita GDP of Sub‐​Saharan African countries has increased from $2,104 in 2000 to $3,466 in 2015, an increase of 65 percent in 15 years.</p> <p>What accounts for the increased growth of the past half century? Why has per capita income in some countries grown rapidly, but lagged behind in others? How have differences in geography, institutions, international trade, and demographic changes influenced development during recent decades? This article will examine each of these questions.</p> <h2>The Transportation‐​Communication Revolution: What It Is and Why It Has Changed the Pattern of Development</h2> <p>Since the 1950s, there has been a huge reduction in transportation and communication costs, driven by improvements in technology and entrepreneurship. The jet engine substantially reduced the cost of both air travel and shipment of cargo. The integrated circuit and the microprocessor have improved the quality and reduced the cost of products ranging from cell phones to airplanes. The internet has vastly reduced the cost and increased the speed of transmitting information.</p> <p id="pn2">Consider the impact of the steel container, a low tech and largely unheralded invention. Because these containers are standardized in size and design, thousands of them can be stacked on large ships and transported at a low cost to ports throughout the world. Upon arrival, machines can lift them onto rail cars and trucks for transport to inland distribution centers and manufacturing facilities. The use of these containers has reduced the costs of loading and unloading ocean freighter cargo in the United States from $48 per ton in 1956 to 18 cents<sup><a href="#en2">2</a></sup> in 2006, a reduction of 99 percent (<a href="#ref009">Hammond 2019</a>).<sup><a href="#en3">3</a></sup> Of course, this is merely the cost of loading and unloading, not the total cost of shipping. However, until recent decades, the loading and unloading costs were a major component of total shipping costs, particularly for short and medium distance hauls.</p> <p id="pn4">The cost of air passenger transport has also declined sharply and the volume of international travel soared in recent decades. According to data from The World Tourism Organization, 524 million people traveled from one country to another in 1995, but that figure expanded to 1.3 billion in 2017, a whopping 148 percent increase in 22 years.<sup><a href="#en4">4</a></sup> The growth of international travel by persons from developing countries was even greater. In upper‐​middle‐​income countries, 104 million people traveled via air to a foreign country in 1995, but that figure soared to 348 million in 2017, an increase of 235 percent. For lower‐​middle‐​income countries, the increase in international air travel was even larger, going from 29 million in 1995 to 138 million in 2017 — an increase of 376 percent in just 22 years (<a href="#ref023">World Bank Databank 2019</a>).</p> <p>The timing and financial cost reductions for several forms of communication have been so dramatic they are difficult to even estimate. As recently as 1980, international telephone calls were of uncertain quality and cost several dollars per minute. Today, calls involving both audio and video transmission, including conference calls, can be made over the internet at a small fraction of their cost just a few decades ago. In the 1980s, sending documents and written messages would have cost tens of dollars and the delivery taken seven days or more. Today, digital documents can be delivered in seconds at a near zero price.</p> <p id="pn5">Data on shipping of cargo via ocean and air provide insight on the magnitude of the changes in shipping costs. Ocean shipping constitutes 99 percent of world trade by weight and a majority by value. <a href="#fig9_1">Figure 1</a>, Panel A, presents the data for ocean shipping costs expressed as an ad valorem rate (the total shipping cost divided by the total value of the cargo shipped). Two series are shown in Panel A. The first is from the classic study by Hummels (<a href="#ref010">2007</a>) based on the cost and value of all imports entering U.S. ports by ship each year during 1974–2004. The second series covers 1995–2016 and is constructed using data from the OECD (<a href="#ref015">2019</a>). It is the cost of transportation and insurance as a share of the overall value of the imported shipment.<sup><a href="#en5">5</a></sup> The data series used here is a trade weighted average of U.S. shipping costs from Miao and Attia (<a href="#ref014">2018</a>). These two data series are constructed using slightly different definitions of costs, meaning that in the overlapping years (1995–2004), values are unlikely to be identical between both sets. However, both reflect dramatic changes in the cost of ocean shipping through time. Hummels’s data (<a href="#ref010">2007</a>) indicate that ocean shipping costs fell from 10 percent of the value of the shipment in 1974 to 5.8 percent in 2004, a reduction of 42 percent over these three decades.<sup><a href="#en6">6</a></sup> The OECD data indicate that ocean shipping costs, including insurance, declined from 4.2 percent of cargo value in 1995 to 2.8 percent in 2016, a reduction of 33 percent during the 21 years. Together, the two series imply that real ocean shipping costs declined by slightly more than 50 percent during 1974–2016.</p> <p align="center" id="fig9_1"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-1a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-1b.jpg" class=" lozad" /></p> <p><a href="#fig9_1">Figure 1</a>, Panel B presents data on shipping costs via air freight. As in the case of Panel A, two series are presented. While both are based on the revenue of air carriers per ton‐​kilometer shipped, they cover different time spans and air carriers. The first series (<a href="#ref010">Hummels 2007</a>) is an index of the revenue per ton‐​kilometer shipped for all international carriers during 1955–2003. The second series (<a href="#ref022">U.S. Bureau of Transportation Statistics 2019</a>) covers 2000–19, but is only for U.S. carriers on international cargo flights. Each series is an index reflecting the real revenue earned by air carriers in U.S. dollars. The Hummels series has an index value of 100 in 2000, while the BTS series has an index value of 100 in 2012. The decline in air transport costs over the period was quite dramatic. Hummels’s data indicate that the index of air cargo shipping revenue fell from 1,217 in 1955 to 95 in 2003, a 92 percent reduction during this time span. The BTS index of revenue per ton‐​kilometer fell from 126 in 2000 to 87 in 2019, a 31 percent reduction during the two decades. Using the last year in which the two series overlap, the overall percentage decline of revenue per ton‐​kilometer for air transport during 1955–2019 was a whopping 94 percent. While a substantial share of the decline in the cost of air shipping occurred prior to 1970, the reduction during 1970–2019 was still huge — 78 percent.</p> <h3>The Transportation‐​Communication Revolution and Economic Development</h3> <p>There are four reasons why these reductions in transportation and communication costs will promote development: (1) gains from reductions in transaction costs and expansion in international trade; (2) increased gains from entrepreneurship and adoption of technology and successful business practices from other countries; (3) improved economic institutions; and (4) a virtuous cycle of development. Let’s take a closer look at each of these sources of growth.</p> <p>First, as the reductions in transportation and communication costs increase the volume of international trade, gains from specialization and adoption of mass production techniques will increase. As a result, it will be possible for the trading partners to achieve lower costs, larger outputs, and higher income levels. In a dynamic sense, these factors will enhance economic growth.</p> <p>Second, the advanced technologies and successful business practices employed in other countries are an important source of gains from entrepreneurship and improvements in productivity. This factor is particularly important in developing countries. Businesses and entrepreneurs in developing countries can merely copy (or adopt at a low cost) the successful technologies and practices of the more advanced economies. However, in order to do so, they need to know about them. The reductions in transportation and communication costs and accompanying increased interaction among people living in high‐ and low‐​income countries will provide valuable information that will accelerate this process. So, too, will the ease of accessing and transmitting information and communicating with others throughout the world.</p> <p>Third, the lower transportation and communication costs will also increase the incentive to adopt economic policies more consistent with growth and development. For example, when the cost of shipping goods to major markets or obtaining resources from distant locations is high, the incentive to remove various trade barriers is weak, particularly in countries located distant from major markets. However, lower transportation costs will provide greater access to a broader set of markets, increasing the potential gains derived from reductions in trade barriers. In turn, the larger potential gains will increase the incentive of businesses and entrepreneurs to bring additional pressure for trade liberalization.</p> <p>Reductions in transportation and communication costs will also influence the incentive to support a legal structure protective of property rights and enforcement of contracts. Foreign businesses and investors will be reluctant to engage in business activities when the country’s legal system fails to provide for security of property rights and enforcement of contracts. If high transportation costs make the country an unattractive place to do business, the gains derived from improvements in the legal system will be small. However, when reductions in transportation and communication costs increase the attractiveness of a country to potential businesses and investors, the gains derived from improvements in the legal system will increase, enhancing the incentive to move toward legal system improvements. Thus, in addition to their more direct impact on the volume of trade and entrepreneurship, lower transportation and communication costs will generate a positive secondary effect: enhancing incentives for countries to remove trade barriers and improve their legal systems.</p> <p>Fourth, once the growth process begins, countries experience a virtuous cycle of economic development. Higher income levels increase the opportunity cost of having children and increase incentives for individuals to improve their education and skill level. As a result, the birthrate declines, leading to a reduction in the share of population within the youngest age categories and an increase in the population share within the prime working‐​age group. In turn, this expansion in the share of population within the prime working‐​age category propels additional growth. Moreover, the declining share of children and higher earnings both increase the incentive to invest in additional schooling and improve human capital, which eventually leads to still higher worker productivity and income levels.</p> <h3>International Trade and Economic Growth</h3> <p>Since the time of Adam Smith, most economists have argued that international trade facilitates higher income levels and more rapid growth. In recent years, this view has increasingly come under attack from political leaders and even a few economists. The substantial reductions in transportation and communication costs in recent years serve as a natural experiment on the relationship between increases in international trade and economic growth. Like reductions in tariffs and removal of other trade barriers, lower transportation and communication costs will increase the volume of mutually advantageous exchanges. In turn, economic theory indicates these exchanges will make it possible for the trading partners to achieve higher income levels.</p> <p>If the above economic view of trade is correct, today’s expansion in trade should be associated with higher rates of economic growth. Further, countries with larger expansions in trade volume should grow more rapidly. While the relationship between international trade and economic growth is not the primary focus of our research, our empirical analysis nonetheless provides evidence on this issue. We will return to this topic over the course of this article.</p> <h2>The Transportation‐​Communication Revolution and the Pattern of Development</h2> <p id="pn7">What impact has the reduction in transportation and communication costs had on the pattern of development in recent decades? In order to examine this question, we assembled data on per capita GDP, demographics, and economic institutions. There are 134 countries for which per capita GDP data are available from the Penn World Table version 9.1 (<a href="#ref004">Feenstra, Inklaar, and Timmer 2015</a>) continuously since 1970 for which the economic freedom of the world (EFW) (<a href="#ref008">Gwartney et al. 2018</a>) data are also available in 2015.<sup><a href="#en7">7</a></sup> This set of 134 countries constitutes the primary database of this study. In 2017, the population of these countries comprised 94 percent of the total for the world.<sup><a href="#en8">8</a></sup> Demographic data on population by age group are also available for these 134 countries for 1960–2015 (<a href="#ref023">World Bank, 2019</a>). While economic freedom data are unavailable for many of these countries for earlier years, the EFW data are available for approximately 100 countries dating back to 1980. Thus, our cross‐​country analysis will generally involve between 100 and 134 countries.</p> <p>We divided the 134 countries in our primary database into three subgroups: (1) the 21 high‐​income countries of Western Europe, North America, and Oceania plus Japan; (2) 40 countries that face major geographic disadvantages as the result of their unfavorable location and climate; and (3) 73 other developing countries. Following Jeffrey Sachs (<a href="#ref017">2003</a>), we measured geographic disadvantages based on a country’s distance from major markets, malaria ecology, and proportion of population residing within 100 kilometers of an ice‐​free ocean coastline. Our variable for measuring distance to major markets is the minimum air distance, in thousands of kilometers, from the capital city of each country to New York, Rotterdam, or Tokyo. Malaria ecology is a purely climatological variable indicating the ecological conditions for the prevalence of malaria. The basic formula for malaria ecology includes temperature, mosquito species abundance, and specificity of mosquito vector types that are most dangerous to humans. This index ranges from zero (least dangerous) to 31 (most dangerous) environment for malaria. The ocean coastline variable, which ranges from zero to one, indicates the fraction of a nation’s population in 1994 living within 100 kilometers of an ocean coastline. The geographic disadvantage variables are from Gallup, Sachs, and Mellinger (<a href="#ref006">1999</a>) and Sachs (<a href="#ref017">2003</a>).</p> <p>We standardized and added the original values of the above three geographic disadvantage variables to provide an aggregate measure for each country’s geographic disadvantage. We also standardized this aggregate measure to derive a summary geographic disadvantage measure with a zero mean and standard deviation of 1 for the 134 countries of our primary data base. <a href="#tbl9_2">Table 2</a> (columns 1, 2, and 3) shows the original values of the three geographic disadvantage variables for the 40 most disadvantaged countries in our analysis. Column 4 shows the summary geographic disadvantage measure, in standardized units, for each of these countries.</p> <p align="center" id="tbl9_2"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-2a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-2b.jpg" class=" lozad" /></p> <p>As <a href="#tbl9_2">Table 2</a> shows, the five most geographically disadvantaged countries are Burkina Faso, Mali, Niger, Chad, and Central African Republic. These five countries have high malaria ecology (20 or above) and are located approximately 5,000 kilometers (about 3,000 miles) from their closest major world market center (Rotterdam, New York, or Tokyo). Moreover, all five are landlocked with zero percent of their population residing within 100 kilometers of an ocean coastline. The standardized summary measure indicates these five countries confront unfavorable geographic conditions that are between 1.78 and 2.54 standard deviations from the world sample mean. Thirty‐​six of the 40 most geographically disadvantaged countries are Sub‐​Saharan African. The four exceptions are Latin American countries: Paraguay, Argentina, Bolivia, and Brazil. Among the 30 most geographically disadvantaged countries, all are Sub‐​Saharan African aside from Paraguay. Clearly, Sub‐​Saharan Africa dominates the list of countries with the most unfavorable geographic conditions.</p> <h3>Expansion in International Trade and the Impact of Geography</h3> <p id="pn9">Using the Penn World Table merchandise trade data, <a href="#fig9_2">Figure 2</a> shows the path of international trade as a share of GDP for the world during 1960–2017 (left axis) and the 15‐​year moving average of annual real per capita GDP growth during 1950–2017 (right axis).<sup><a href="#en9">9</a></sup> The growth figures are from the Maddison dataset (<a href="#ref001">Bolt et al. 2018</a>) because these data are more complete than the Penn World Table data for the years prior to 1970. During 1960–2017, international trade increased persistently and substantially as a share of global output. During the 1960s, the trade/​GDP ratio averaged 19 percent of world GDP. By 1970, the ratio had risen to 20 percent, and by 1990, it was at 32 percent. It continued to rise, reaching 43 percent in 2000 and 50 percent in 2010. Since 2010, the ratio has fluctuated around 50 percent. Thus, international trade as a share of world GDP in recent years has been approximately 2.5 times the level of the 1960s.</p> <p align="center" id="fig9_2"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-2.jpg" class=" lozad" /></p> <p>The 15‐​year average annual growth rate for the world, in terms of per capita GDP (shown in <a href="#fig9_2">Figure 2</a>), indicates that the expansion of international trade is associated with increasing growth of worldwide real per capita GDP. Prior to the early 1990s, the average growth rate of worldwide per capita GDP fluctuated between 1.9 and 2.9 percent. After 1990, as the volume of trade rose from 30 percent of global GDP to 50 percent, the 15‐​year moving average of global per capita GDP growth steadily increased, reaching 4.1 percent in 2015. The expansion in international trade and increased economic growth during the half century following 1965 is remarkable. However, this is precisely the expected response to such a huge reduction in transportation and communication costs.</p> <p>While <a href="#fig9_2">Figure 2</a> shows the aggregate expansion in merchandise trade, <a href="#fig9_3">Figure 3</a> illustrates the breakdown of that expansion for each of the groups in our dataset: the 21 high‐​income, 40 most geographically disadvantaged, and 73 other developing countries between 1960–2017. We computed the total real value of trade (measured in 2011 dollars) for each group and transformed it into an index with a base value of 100 in 1960. Thus, changes in the index illustrate the magnitude of the change in the real value of trade for each group during the period.</p> <p align="center" id="fig9_3"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-3.jpg" class=" lozad" /></p> <p>The increases in trade were most dramatic among the less geographically disadvantaged developing countries. From 1960–90, the index rose to 557 for the high‐​income countries, 545 for the less disadvantaged developing countries, and 282 for the geographically disadvantaged countries. This indicates that the volume of international trade in 1990 of the first two groups was approximately 5.5 times its level in 1960, while the parallel figure was only 2.8 for the geographically disadvantaged countries. After 1990, however, the growth of international trade soared for the less geographically disadvantaged developing countries and by 2017 had increased to 4,450, indicating that the total real value of trade for these countries was 44.5 times its level in 1960. This dwarfs the expansion in international trade for the other two groups: by 2017, the indices for the high‐​income countries and the geographically disadvantaged countries were 1,637 and 1,505, respectively. Thus, the 2017 volume of international trade of these two groups was about 15 or 16 times their level of 1960, far less than the parallel figure of 44.5 times for the less geographically disadvantaged group.</p> <p id="pn10">In 1960, global trade was dominated by the high‐​income countries. Their share of global trade stood at 69.4 percent, while the share of global trade for the less geographically disadvantaged developing countries was 24.8 percent. However, by 2017, the share of global trade for the high‐​income countries and less disadvantaged developing countries was approximately the same: 47.5 percent and 48.8 percent, respectively.<sup><a href="#en10">10</a></sup></p> <p><a href="#fig9_4">Figure 4</a> shows the per capita real dollar value (in 2011 dollars) of international merchandise trade for the three groups. Unsurprisingly, the per capita dollar value of the trade volume of the 21 high‐​income countries was much larger than it was for either of the developing groups. From 1960–75, the per capita international trade of the high‐​income group increased substantially compared to the other countries, and in 1975 reached $5,547, more than eight times the $659 figure for each of the developing groups. Between 1960 and 1975, the per capita dollar value of trade for the 40 most geographically disadvantaged countries was generally greater than the parallel figure for the 73 developing countries.</p> <p align="center" id="fig9_4"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-4.jpg" class=" lozad" /></p> <p>Following 1975, however, the expansion in merchandise trade for less geographically disadvantaged developing countries grew far more rapidly than it did for the geographically disadvantaged countries. By 2000, the per capita dollar value of international trade for the former group had risen to $1,936, while the same figure had risen to only $880 for the geographically disadvantaged group. The trend continued during 2000–17. By 2017, the real dollar value of international trade per capita of the least geographically disadvantaged developing countries had risen to $4,878, compared to $1,483 for the most geographically disadvantaged group. Thus, while per capita trade for both groups was equal in 1975, by 2017, the trade volume of the nongeographically disadvantaged developing countries was 3.3 times the trade volume of the geographically disadvantaged group. During 1975–2017, the per capita trade volume of the high‐​income countries rose from $5,547 to $26,273, an increase of 373 percent over 42 years. During this same time frame, the per capita trade for the less geographically disadvantaged developing countries rose from $649 to $4,878, an increase of 651 percent. Thus, the per capita real dollar value of international trade of the 73 developing countries rose by a substantially higher percentage than the parallel figure for the other two groups.</p> <p>In summary, the volume of international trade rose substantially during the past half century (<a href="#fig9_2">Figure 2</a>). But the growth of international trade differs substantially across country groups. The percentage increase in the real dollar value of international trade has been far greater for the 73 developing countries than for the 21 high‐​income and 40 most geographically disadvantaged countries (<a href="#fig9_3">Figure 3</a>). Moreover, as <a href="#fig9_4">Figure 4</a> shows, the dollar value of per capita international trade is much smaller for both developing groups (particularly the geographically disadvantaged group) than it is within the high‐​income countries. No doubt the developing countries’ substantially smaller trade volume is a major reason for their low income levels relative to their high‐​income counterparts.</p> <h3>Gains from Improvements in Economic Institutions</h3> <p>The reduction in transportation and communication costs will enhance incentives for developing countries to improve their economic institutions. <a href="#tbl9_3">Table 3</a> presents the simple mean (Panel A) and population weighted mean (Panel B) ratings for the summary economic freedom and freedom of international exchange (Area 4) using the Fraser Institute’s economic freedom of the world (EFW) data for 1985, 2000, and 2015 for the high‐​income and developing country groups (<a href="#ref008">Gwartney et al. 2018</a>). As expected, the ratings of the high‐​income group were greater than those of the developing countries. In 2017, the simple mean of the EFW summary rating for the high‐​income countries was 7.7, compared to 6.9 for the developing countries and 6.1 for the geographically disadvantaged countries.</p> <p align="center" id="tbl9_3"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-3.jpg" class=" lozad" /></p> <p>The EFW summary ratings generally rose during 1985–2015, but the increases for the developing countries were greater. Thus, the gap between the high‐​income and the developing groups’ EFW ratings narrowed. In 1985, the simple mean EFW summary rating of the high‐​income countries was 1.4 units greater than it was for the 73 developing countries and 2.4 units greater than for the 40 most disadvantaged countries. By 2015, however, this gap had fallen to 0.8 for the other developing countries and 1.6 for the geographically disadvantaged countries. In the case of the population weighted means (Panel B), the gap between the high‐​income and developing countries followed a similar path.</p> <p>Turning to the Area 4 trade openness variable, the simple mean rating of the high‐​income countries was 7.7 in 1985, compared to only 4.5 for the less geographically disadvantaged developing countries and 3.5 for the most geographically disadvantaged group. In 2015, the trade openness simple mean rating of the high‐​income countries was 8.1, slightly higher than it was in 1985. In contrast, the simple mean ratings for the less geographically disadvantaged developing countries rose sharply during 1985–2015, narrowing the gap in trade openness between the developing and high‐​income countries. The gap in the simple mean between the high‐​income and 73 developing countries fell sharply, from 3.2 in 1985 to only 0.9 in 2015. In the case of the most geographically disadvantaged countries, the simple mean gap fell from 4.2 in 1985 to 2.0 in 2015. As Panel B shows, the population weighted mean trade openness gap between the high‐​income and developing countries followed a similar path. Thus, as incentive structures changed following the reduction in transportation and communication costs, the developing countries moved toward better economic institutions and more open trade.</p> <h3>Gains from the Virtuous Cycle of Development</h3> <p>Once the growth process begins, the virtuous cycle of development indicates that birth rates will decline and the share of population in the most productive age groups will rise. Thus, as reductions in transportation and communication costs, increases in gains from trade, and improvements in economic institutions ignite the growth process, increases in the share of population in the prime working‐​age categories will further boost economic growth. Of course, higher rates of economic growth will accelerate this process, causing the share of population in the prime working‐​age categories to increase rapidly.</p> <p><a href="#fig9_5">Figure 5</a> shows the share of the population within the prime working‐​age category (ages 25–59), relative to the total, for each of our three major groups since 1950. During 1950–70, the prime working‐​age share of the population trended downward across all three groups. This worldwide trend reflected the dearth of births during the economic hardship of the Great Depression and World War II and the substantial increase in the birth rate following the postwar boom.</p> <p align="center" id="fig9_5"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-5.jpg" class=" lozad" /></p> <p>The share of the prime working‐​age population within the high‐​income countries rose by approximately 2 percentage points per decade during 1970–2000, but it has declined at a similar rate since the onset of the 21st century. In 2017, the prime working‐​age group comprised 46.5 percent of the total population of the high‐​income countries, down from 49 percent in 2000. The prime working‐​age share of the population for the 73 less geographically disadvantaged developing countries was much lower than it was for the high‐​income countries during the 1970s, but this situation changed dramatically over the next four decades. The prime working‐​age share of the population for the less geographically disadvantaged developing countries rose from 34 percent in 1975 to 38 percent in 1990, before soaring to 46 percent in 2010. During 1990–2010, the prime working‐​age share of this group’s population increased by a whopping 4 percentage points per decade. By 2017, the prime working‐​age share of the population was higher for these 73 developing countries (48 percent) than it was for the high‐​income group (46.5 percent).</p> <p>Compared to the other two groups, the prime working‐​age share of the population for the most geographically disadvantaged countries was substantially lower and increased at a slower rate during the past half century. The prime working‐​age share of the population for the most geographically disadvantaged group fluctuated within a narrow band (around 33 percent) between 1970–90, before trending slowly upward to 36 percent in 2017. In 2017, the prime working‐​age share of the population for the most geographically disadvantaged countries was more than 10 percentage points below the parallel figures for the other two groups.</p> <p>The virtuous cycle of development implies that these differences in demographic changes impact the pattern of economic growth for each of the three groups. The expansion in the share of population in the high‐​productivity, prime working‐​age category for the high‐​income countries during 1970–2000 and the less geographically disadvantaged developing countries during 1975–2017 tended to enhance their economic growth. On the other hand, the low and more stable prime working‐​age share of the population in the most geographically disadvantaged countries tended to adversely affect their growth and development.</p> <h2>International Trade, Institutions, Demography, and the Pattern of Development during the Past Half Century</h2> <p>As would be expected, the huge reductions in transportation and communication costs of the Transportation‐​Communication Revolution substantially increased the volume of international trade, particularly for the less geographically disadvantaged countries we studied. Improvements in the economic institutions and policies of developing countries, as well as demographic changes (the share of population in the prime working‐​age category), have also accompanied the Transportation‐​Communication Revolution. How important are these factors as sources of economic growth?</p> <p>Prior research utilizes cross‐​country differences in both trade policy and volume to examine the impact of trade on economic performance. Various measures of trade policy, including composite trade openness indices, tariff rates, and black market exchange rates have been employed (<a href="#ref018">Sachs and Warner 1995</a>; <a href="#ref003">Edwards 1998</a>). This research generally finds a positive relationship between more open trade policies and higher rates of economic growth. However, relying only on the above measures is problematic as they do not adequately capture all aspects of trade policy (<a href="#ref016">Rodríguez and Rodrik 2001</a>). Moreover, the trade policy research suffers from two additional shortcomings. First, countries with more open trade policies also generally have better institutions (e.g., legal structure, regulatory policy, and constraints on the executive). This makes it difficult to determine the importance of trade policy relative to other institutional factors. Second, geography influences the impact of trade policy on economic growth. For example, the impact of a reduction in tariff rates will be very different for countries like Ireland and Hong Kong, which are located near major markets, than for countries like Uganda and the Central African Republic, which are landlocked and distant from major markets. Past research on the impact of trade policy generally fails to account for these factors.</p> <p>Additional research has focused on how variations in the size of the trade sector influence economic growth (<a href="#ref005">Frankel and Romer 1999</a>; <a href="#ref024">Yanikkaya 2003</a>). The volume of international trade as a share of GDP has generally been used to measure the size of the trade sector. Unfortunately, there are problems with this measure as well. Trade as a share of GDP varies substantially according to both country population and area. International trade as a share of GDP will be larger for smaller, less populous countries than it will be for their larger counterparts. Moreover, countries with larger trade sectors often also have superior economic and political institutions, leading to multicollinearity between international trade and institutional quality (<a href="#ref002">Dollar and Kraay 2003</a>). These methodological shortcomings weaken confidence in the findings of prior research.</p> <p>Our analysis measures the expansion in the size of a country’s trade sector using the change in the real volume of international trade over three 15‐​year periods and one 12‐​year period, divided by the GDP in the first year of each period. This variable measures the magnitude of changes in the relative volume of trade during a period regardless of a country’s size, level of development, or geographic characteristics. It is important to consider growth over a lengthy time frame because, during short periods, a country’s growth rate will be affected by random shocks, phases of the business cycle, and similar temporary factors. Moreover, it will take time for changes in technology, shipping costs, and policy to exert an impact on the volume of trade and economic growth. Thus, our analysis examines the impact of changes in the volume of trade, as well as institutional and demographic factors, on economic growth over lengthy time periods.</p> <h3>Regression Results</h3> <p><a href="#tbl9_4">Table 4</a> shows the regression equations for our growth model with the annual growth rate of real per capita GDP (in 2011 dollars) as the dependent variable. Changes in the volume of international trade, share of the population in the prime working‐​age category, and economic freedom are included as independent variables, along with a set of control variables. The trade variable is the change in international trade in real 2011 dollars during each period divided by real GDP at the beginning of the period. A one unit increase in this variable indicates that the increase in real international trade (exports 1 imports) during that period is equal to the initial real GDP. Both the share of population in the prime working‐​age category (ages 25–59) at the beginning of each period and the change in that share during the same period are also included as independent variables. Similarly, the level of economic freedom five years prior to the beginning of each period and change through the end of the period are incorporated as measures of economic institutions. Theory indicates that each of these variables will have a positive impact on the growth of real GDP per capita.</p> <p align="center" id="tbl9_4"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-4a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-4b.jpg" class=" lozad" /></p> <p>Four control variables are also included in our model: log of per capita GDP; population; and two dummy variables. The log of per capita GDP at the beginning of each time period is designed to reflect a country’s initial stage of development. If lower income countries are growing more rapidly than their high‐​income counterparts, this variable will be negative. This is often the case because low‐​income countries are able to copy (or acquire at a low cost) successful technologies and business practices of high‐​income countries. The reduction in transportation and communication costs of recent decades amplifies the importance of this factor. Population (in hundreds of millions), our second control variable, is expected to generally be positive because populous countries have larger domestic markets, which will result in larger gains from both the adoption of mass production processes and increased attractiveness to foreign investors. We included a dummy variable for countries experiencing conflicts resulting in more than one fatality per thousand during any of the last five years of a period. Since war and other forms of bloody conflict generally adversely impact economic growth, this variable is expected to have a negative sign. Finally, we included a dummy variable for six small middle eastern oil exporters (United Arab Emirates, Qatar, Bahrain, Kuwait, Oman, and Saudi Arabia). Somewhat paradoxically, the per capita GDP of these countries often declines during periods of high and rising oil prices because of increased inflows of immigrant workers with incomes well below the national average. Thus, this variable is expected to be negative, particularly when world oil prices are high.</p> <p>We ran our model over four time frames: 1960–75, 1975–90, 1990–2005, and 2005–17. Since economic freedom data are only available for a large set of countries during the last two periods, columns 1 through 4 represent the results of our model without its economic freedom variable, while columns 6 and 7 represent results using our full model. Columns 5 and 8 present the results of our panel analysis for the first four and final two periods, respectively.</p> <p>As <a href="#tbl9_4">Table 4</a> shows, the change in the size of the trade sector was positive and significant at the 1 percent level for all equations except for equation 7 (where it was significant at the 10 percent level). The coefficient of the trade variable in the first three equations ranged from 1.01 to 1.31, indicating that, after adjusting for the other variables, a one unit expansion in the size of the trade sector during each period was associated with a higher annual growth rate of 1 to 1.3 percentage points. Note: the size of the trade coefficient during 2005–17 was even larger, approximately 2 (column 4), consistent with the view that the impact of international trade on growth was strongest during the most recent period. As column 3 shows, the coefficient on the trade variable during 1990–2005 was 1.01, implying that a one unit increase in the size of the trade sector during this 15‐​year period was associated with an annual growth rate increase of 1.01 percentage points. Consider the following example: the value of the trade sector variable for Argentina, Ecuador, and Romania was approximately 0.5 during 1990–2005, compared to 1.5 for Norway and Jordan. This suggests that, after adjusting for the impact of the other variables, additional trade enhanced the annual growth rate of the latter two countries, relative to the former, by about 1 percentage point.</p> <p>Both the prime working‐​age population as a share of the total and the change in that share (during each period) were positive and significant in all equations, generally at the 5 percent level or higher. The coefficient for the change in prime working‐​age population was approximately 0.2, indicating that a one percentage point expansion in the prime working‐​age share of the population was associated with a 0.2 percentage point increase in the annual growth of per capita GDP during each period.</p> <p>Our control variables generally performed as expected. The pattern of the per capita GDP at the beginning of each period was particularly interesting: the initial GDP variable was insignificant during 1960–75 but negative and significant for the last three periods. The negative sign indicates convergence — the countries with lower initial per capita GDP grew more rapidly than their higher income counterparts for periods beginning after 1975.</p> <p>Columns 6, 7, and 8 integrate our economic freedom variable into the analysis. The level of economic freedom was generally positive and significant. The change in economic freedom during the past 20 years (17 in the case of the last period) was always significant at the 5 percent level or higher. The coefficients for the change in economic freedom variable ranged from 0.92 to 0.97, indicating that each unit increase in economic freedom during any given period increased that period’s annual growth rate by slightly less than 1 percentage point.</p> <p>Panel data methods provide more precise estimates of the relationship between our independent variables and the dependent variable, primarily because of the increased number of observations. Column 5 presents the pooled OLS panel results of the model without the economic freedom variable and column 8 shows the results with the economic freedom variable. In our panel analysis, the coefficients of these variables are similar to those for each individual period and their significance levels are generally higher. In our panel analysis, the coefficients for the trade variable were 1.29 (column 5) and 1.20 (column 8). This indicates that a one unit increase in the international trade variable is associated with an estimated 1.2 to 1.3 percentage point increase in the annual growth rate of real per capita GDP. In the panel analysis, the coefficients for the change in the prime working‐​age population variable were 0.20 and 0.17, respectively. This implies that a percentage point increase in the share of population in the prime working‐​age category enhances the annual growth rate of per capita GDP by approximately two‐​tenths of a percentage point. The coefficient for the change in economic freedom in our panel analysis (column 8) was 0.97, indicating that a one unit increase in economic freedom enhances economic growth by nearly a percentage point. These three key variables were positive and significant at the one percent level in the panel analysis. As the adjusted r‐​square indicates, the explanatory power of the model was high — 45 and 42 percent for columns 5 and 8, respectively. Lastly, the panel analysis includes dummy variables in order to control for period effects across time.</p> <h3>Robustness Checks</h3> <p>In order to examine robustness, the model was run for a different set of countries, different time periods, and with alternative measures of GDP and trade. It is important to determine if the results are affected by the inclusion of the high‐​income countries. Therefore, <a href="#tbl9_5">Table 5</a> includes only developing countries in the regressions; the 21 high‐​income countries are omitted.</p> <p align="center" id="tbl9_5"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-5a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-5b.jpg" class=" lozad" /></p> <p>As in <a href="#tbl9_4">Table 4</a>, the dependent variable in <a href="#tbl9_5">Table 5</a> is the annual growth rate of real per capita GDP. The independent variables are also identical. Even though the high‐​income countries were omitted from the version of the model used for <a href="#tbl9_5">Table 5</a>, the results are similar to those of <a href="#tbl9_4">Table 4</a>. Once again, the variables for international trade, change in the prime working‐​age share of the population, and economic freedom were highly significant. The coefficients of the international trade variable in the panel analysis (columns 5 and 8) were 1.34 and 1.28, respectively, indicating that a one unit increase in the trade variable increases the annual growth rate by an estimated 1.3 percentage points. This is virtually the same as the estimates of <a href="#tbl9_4">Table 4</a>. Both the level and change in the share of population in the prime working‐​age category were highly significant. The coefficients in the panel regressions indicate that a one percentage point increase in the share of population in the prime working‐​age category increases the annual growth rate by approximately two‐​tenths of a percentage point. Again, the coefficient for the change in economic freedom (0.96 in the panel analysis) indicates that a one unit change is associated with a little less than a percentage point increase in the annual growth rate of real per capita GDP. The control variables and explanatory power of the model are virtually unchanged from the results of <a href="#tbl9_4">Table 4</a>. These findings show that the trade, demographic, and economic freedom variables continue to exert a strong impact on economic growth when only developing countries are included in the analysis.</p> <p><a href="#tbl9_6">Table 6</a> is similar to <a href="#tbl9_4">Table 4</a> except the time periods differ. <a href="#tbl9_6">Table 6</a> shows the results of the model for three alternative 15‐​year periods: 1970–85, 1985–2000, and 2000–15. Again, the dependent variable is the annual growth rate of real per capita GDP during each period. The results show that our model is highly stable across varying time periods. The coefficients of the trade variable (1.05 and 0.88 in the panel analysis, columns 4 and 7) are slightly lower than those of <a href="#tbl9_4">Tables 4</a> and <a href="#tbl9_5">5</a>. However, these coefficients are actually a little more significant than they are in the prior analysis. Here, the t‐​ratios for the trade variable coefficients are exceedingly high — 9.39 in the first panel regression, and 4.65 in the second. The coefficients on the change in the prime working‐​age share of the population were 0.20 and 0.24 in the two panel regressions, once again indicating that a percentage point increase in the share of population in the prime working‐​age group is associated with approximately two‐​tenths of a percentage point increase in the annual growth rate of real per capita GDP. The 1.0 coefficient for the change in economic freedom implies that a unit change in this variable enhances the annual growth rate by approximately one percentage point. The pattern of the control variables is also similar to that of the prior analysis. The r‐​squares for <a href="#tbl9_6">Table 6</a>’s panel equations (0.46 and 0.52) are a little higher than in <a href="#tbl9_4">Table 4</a>, indicating a slight increase in the explanatory power of the model.</p> <p align="center" id="tbl9_6"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-6a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-6b.jpg" class=" lozad" /></p> <p><a href="#tbl9_7">Table 7</a> replaces the Penn World Table measures of GDP and international trade in 2011 purchasing power parity dollars with the World Bank measures. In addition, the trade measure is now for goods and services, rather than merchandise trade. The broader trade measure that includes services is unavailable from the Penn World Table data set. A disadvantage of using the World Bank data is that the GDP and trade data in constant PPP 2011 dollars are unavailable for years prior to 1990. Thus, <a href="#tbl9_7">Table 7</a> covers only two time periods: 1990–2005 and 2005–17. Further, the overall number of observations is slightly lower (116 and 127 rather than 134) because the World Bank data were unavailable for a few of the 134 countries in our data set.</p> <p align="center" id="tbl9_7"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-7a.jpg" class=" lozad" /><br /><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-table-7b.jpg" class=" lozad" /></p> <p>In spite of these differences, the results are similar to those derived using the Penn World Table data. As in the prior analysis, the expansion in international trade, change in the prime working‐​age share of the population, and increase in economic freedom variables are highly significant (generally at the 1 percent level). However, their coefficients are slightly smaller. The coefficients for the expansion in international trade variable are now 0.83 and 0.60 in the <a href="#tbl9_7">Table 7</a> panel analysis, down from approximately 1.2 in <a href="#tbl9_4">Table 4</a>. In the case of the prime working‐​age variable, the coefficients range from 0.15 to 0.19, slightly lower than the prior estimates of 0.20. The estimated impact of economic freedom on growth is 0.70, compared to the approximately 1.0 in prior tables. The r‐​squares (0.49 and 0.54) in the panel analysis are slightly higher than for the Penn World Table data. The r‐​squares for the full model, including economic freedom, indicate that the independent variables explain 54 percent of the cross‐​country variation in growth rates.</p> <p>In addition to the robustness checks of <a href="#tbl9_5">Tables 5</a>–<a href="#tbl9_7">7</a>, other analyses were performed. The panel regressions of <a href="#tbl9_4">Table 4</a> were also run using a seemingly unrelated regression (SUR) model. The t‐​ratios on the variables of interest were even larger than those shown in <a href="#tbl9_4">Table 4</a>. Thus, the OLS results appear to be more conservative. In addition to SUR, the panel regressions were also run to account for fixed effects. The significance of the variables for international trade, change in the prime working‐​age share of the population, and economic freedom remained unchanged. We also re‐​ran <a href="#tbl9_4">Tables 4</a> and <a href="#tbl9_7">7</a> with the primary trade variable expressed in per capita dollars (the change in the real value of trade per capita over the period divided by the initial real per capita GDP). Again, the results were similar and the modified trade variable remained a positive and significant predictor of economic growth. Finally, we extended the World Bank data from <a href="#tbl9_7">Table 7</a> back to 1985 and re‐​ran our model for the two periods between 1985–2000 and 2000–17. The results were virtually identical to those of <a href="#tbl9_7">Table 7</a>.</p> <p>Tables 4 through 7 illustrate that international trade, demographic changes, and economic institutions exerted a strong and consistent impact on the growth of per capita income during 1960–2017. This supplements our prior analysis showing that as the cost of transportation and communication fell sharply during the past half century, international trade expanded and became a substantially larger share of world output (<a href="#fig9_2">Figure 2</a>). As <a href="#fig9_3">Figures 3</a> and <a href="#fig9_4">4</a> show, the trade sectors of developing countries, particularly those that are less geographically disadvantaged, grew rapidly. In addition, the lower transportation and communication costs increased incentives for developing countries to adopt policies and institutions more consistent with trade openness and economic freedom, and they responded accordingly (see <a href="#tbl9_3">Table 3</a>). As gains from trade and movements toward economic freedom enhanced the growth of per capita GDP, the virtuous cycle of development and accompanying increase in the share of population in the prime working‐​age category provided an additional boost to economic growth. These factors have propelled the economic growth of less geographically disadvantaged developing countries since 1980, and there are signs that they are now accelerating the growth of even the most geographically disadvantaged countries. As a result, the world is now in the midst of an unprecedented period of development: for the first time in history, the growth of worldwide per capita income is strong and the poorer countries are growing more rapidly than their high‐​income counterparts.</p> <h2>International Trade and Economic Growth: A Natural Experiment</h2> <p>The sharp reductions in transportation and communication costs over the past half century provide a natural experiment on the relationship between international trade and economic growth. As our analysis shows, lower transportation and communication costs directly encourage more trade. In addition, these cost reductions increase incentives for countries to reduce their trade barriers. As a result, the volume of international trade should increase expanding the gains from specialization, economies of scale, and entrepreneurship, leading to more rapid economic growth. This is precisely what happened during the past half century: world trade increased and the worldwide growth rate of per capita GDP accelerated (see <a href="#fig9_2">Figure 2</a>).</p> <p>Moreover, increases in international trade exerted a strong and highly significant impact on the annual growth rate of per capita GDP, even after accounting for cross‐​country differences in initial per capita GDP, changes in the prime working‐​age share of the population, economic freedom, population, and other control variables. The positive and highly significant impact of the expansion in international trade on the growth of per capita GDP was present across different time periods, for developing countries only, and for alternative measures of trade — both merchandise and goods and services trade (see <a href="#tbl9_4">Tables 4</a> through <a href="#tbl9_7">7</a>).</p> <p>Unsurprisingly, the least geographically disadvantaged developing countries experienced the largest increases in international trade during the Transportation‐​Communication Revolution (see <a href="#fig9_3">Figure 3</a>). In turn, these countries have grown more rapidly than either the high‐​income or the more geographically disadvantaged groups over the past half century. In recent decades, the growth of the less disadvantaged developing countries has also exceeded the growth of the highest‐​income countries during the Industrial Revolution.</p> <p>While our analysis makes no distinction between increases in international trade resulting from lower transportation and communication costs and those generated by more open trade policies, it indicates that increases in international trade have exerted a positive and highly significant impact on the growth of real per capita GDP during the past half century. These findings provide strong support for the mainstream economic view that higher rates of international trade enhance economic growth, regardless of whether those increases are generated by reduced transaction costs or more open trade policies.</p> <h2>The Transportation‐​Communication Revolution versus the Industrial Revolution</h2> <p>Lower transportation and communication costs have led to higher rates of integration, entrepreneurial activity, and exchange of both goods and ideas — among people living in both high‐ and low‐​income countries — than at any other time in history. The changes of the past half century have created something akin to a second Industrial Revolution: the Transportation‐​Communication Revolution. Like the Industrial Revolution, this more recent revolution has expanded opportunities and enhanced economic growth. But the two revolutions differ in three important respects.</p> <p>First, the impact of the Transportation‐​Communication revolution is much broader. The Industrial Revolution resulted in substantial income gains for between 12 and 15 percent of the world’s population. However, as <a href="#tbl9_1">Table 1</a> indicates, its impact on the rest of the world was minimal for nearly a century and a half. In contrast, the Transportation‐​Communication Revolution has already exerted a major impact on approximately 70 percent of the world’s population, and its scope is still expanding.</p> <p>The increasing share of world GDP generated by the 73 least geographically disadvantaged developing countries illustrates the breadth of the recent economic revolution. These countries generated 24.8 percent of world GDP in 1960, 27.8 percent in 1980, 33.3 percent in 2000, and 47.5 percent in 2017. Remarkably, during the 57 years following 1960, the share of global GDP produced in these countries has doubled.</p> <p>Second, growth rates during the Transportation‐​Communication Revolution have been more rapid than they were during the Industrial Revolution. During 1960–2015, the real per capita GDP of developing countries outside of Sub‐​Saharan Africa rose by 549 percent in just 55 years, an even larger increase than that of the high‐​income countries during the 130 years (1820–1950) following the Industrial Revolution (see <a href="#tbl9_1">Table 1</a>). In recent decades, almost all of the most rapidly growing economies have been those of developing countries.</p> <p id="pn11">Moreover, developing countries today are able to achieve growth rates beyond what was thought to be possible only a few decades ago. Prior to 1950, long‐​term growth rates above 2 percent were largely absent. In the 1800s, even the annual real growth rates of per capita GDP for the United Kingdom and United States — the most prosperous of the high‐​income economies at that time — were 1.0 percent and 1.4 percent, respectively. During the 12 decades from 1820 to 1940, the annual growth of real per capita GDP in the United Kingdom and United States exceeded 2 percent during only one decade for each country.<sup><a href="#en11">11</a></sup> These modest growth rates stand in stark contrast to those of developing countries in recent years. The annual growth rate of real per capita GDP for 44 of the 73 less geographically disadvantaged developing countries exceeded 3 percent between 2000 and 2015. Many developing countries grew even more rapidly during the past half century. Consider the following examples. The real per capita GDP of Hong Kong grew at an annual rate of 4.9 percent from 1960 to 2000. The growth rate of Singapore was even more impressive, hitting 5.7 percent during that same 40‐​year period. Botswana grew at an annual rate of 5.4 percent from 1965 to 2015. From 1970 to 2015, the real per capita GDP of South Korea and Indonesia grew at annual rates of 5.5 percent and 3.6 percent, respectively. Still more recently, the real per capita GDP of China rose at an annual rate of 5.9 percent between 1980 and 2015. In India, real per capita GDP rose by a rate of 4.8 percent annually between 1990 and 2015.</p> <p id="pn12">Third, while the Industrial Revolution increased income inequality, the Transportation‐​Communication Revolution has reduced it. Following the Industrial Revolution, income levels in the high‐​income countries grew, while they stagnated in the rest of the world. Thus, decade after decade, worldwide income inequality increased. In contrast, since the mid‐​1980s, the per capita income in developing countries, particularly those with minimal geographic disadvantages, has increased more rapidly than it has in high‐​income countries. <a href="#fig9_6">Figure 6</a> illustrates this point. The figure shows the 15‐​year moving average of the growth rate of real per capita GDP for the three groups in our analysis. Prior to the mid 1980s, the high‐​income countries grew more rapidly than the less geographically disadvantaged developing countries. Since the mid‐​1980s, however, this situation has changed dramatically. Between 1985 and 2000, the average annual growth rate of the less geographically disadvantaged developing countries was 3.4 percent, compared to 2.1 percent for the high‐​income countries. By 2016, that growth advantage was even greater — 4.96 percent for the developing group, compared to 0.76 percent for the high‐​income countries. Between 2001 and 2016, even the 40 most geographically disadvantaged developing countries were achieving a solid annual growth rate (2.71 percent). As a result, worldwide income inequality has declined sharply in recent years.<sup><a href="#en12">12</a></sup></p> <p align="center" id="fig9_6"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-9-figure-6.jpg" class=" lozad" /></p> <h2>Conclusion</h2> <p>The Industrial Revolution transformed subsistence living into sustained growth, but only for about 15 percent of the world’s population. Throughout the rest of the world, change was minimal. In 1950, the real per capita income for developing countries outside of Africa was slightly less than $4 per day, approximately the same as that of the high‐​income, developed countries at the onset of the Industrial Revolution. But income levels in the developing world have increased dramatically during the past half century, particularly for the 70 percent of the world’s population living in less geographically disadvantaged developing countries.</p> <p>The huge reductions in transportation and communication costs over the past half century provided the foundation for the remarkable increases in economic development and worldwide income. The Transportation‐​Communication Revolution triggered four changes that have altered life in the developing world: gains from large increases in international trade; gains from higher rates of entrepreneurship and expanded opportunities to borrow successful technologies and business practices from high‐​income countries; improvement in economic freedom; and the virtuous cycle of development.</p> <p>Our empirical analysis of the annual growth rate of real per capita GDP since 1960 indicates that the expansion of international trade, higher rates of economic freedom, and increases in the share of the global population in the prime working‐​age category have exerted a strong and highly significant impact on economic growth. Due to the sharp reductions in transportation and communication costs, the volume of international trade has risen sharply in recent decades. The growth of trade in less geographically disadvantaged developing countries has been particularly remarkable. Measured in real dollars, the size of the international trade sector in these countries was 44 times higher in 2017 than it was in 1960. This astonishing rate of growth in international trade was approximately 2.5 times higher than it was in high‐​income and more geographically disadvantaged countries over the same time frame. Propelled by the growth of trade, the real per capita GDP of the five billion people living in the less geographically disadvantaged developing world has grown at nearly twice the rate of high‐​income countries in recent decades. The historically high rates of economic growth have transformed these developing countries even more rapidly than the Industrial Revolution transformed the West between 1820 and 1950.</p> <p>While the Industrial and Transportation‐​Communication Revolutions exerted a similar impact on the lives of those most affected, they differ in three major respects. Compared to the earlier economic revolution, the more recent revolution has been broader, generated more rapid rates of economic growth, and reduced income inequality rather than enlarged it. Both the general populace and the academic literature show an appreciation of the human progress that accompanied the Industrial Revolution. It is now time for both groups to recognize the remarkable human progress brought about by the Transportation‐​Communication Revolution.</p> <h2>References</h2> <p class="REF_F" id="ref001">Bolt, J.; Inklaar, R.; de Jong, H.; and van Zanden, J. (2018) “Rebasing ‘Maddison’: New Income Comparisons and the Shape of Long‐​Run Economic Development.” Maddison Project Working Paper No. 10. Available at <a href="http://www.ggdc.net/maddison">www​.ggdc​.net/​m​a​d​dison</a>.</p> <p class="REF" id="ref002">Dollar, D., and Kraay A. (2003) “Institutions, Trade, and Growth.” <em>Journal of Monetary Economics</em> 50 (1): 133–62.</p> <p class="REF" id="ref003">Edwards, S. 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(2001) “Trade Policy and Economic Growth: A Skeptic’s Guide to the Cross‐​National Evidence.” <em>NBER Macroeconomics Annual 2000</em> 15: 261–338.</p> <p class="REF" id="ref017">Sachs, J. (2003) “Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income.” NBER Working Paper No. 9490.</p> <p class="REF" id="ref018">Sachs, J., and Warner, A. (1995) “Economic Reform and the Process of Global Integration.” <em>Brookings Papers on Economic Activity</em> 1995 (1): 1–118.</p> <p class="REF" id="ref019">Sala‐​i‐​Martin, X., and Pinkovskiy, M. (2010) “African Poverty Is Falling Much Faster Than You Think!” NBER Working Paper No. 15775.</p> <p class="REF" id="ref020">U.S. Bureau of the Census. (1961) <em>Statistical Abstract of the United States: 1961</em>. Washington: U.S. Government Printing Office.</p> <p class="REF" id="ref021">_________ (2001) <em>Statistical Abstract of the United States: 2001</em>. Washington: U.S. Government Printing Office.</p> <p class="REF" id="ref022">U.S. Bureau of Transportation Statistics (2019) <em>U.S Air Carrier Traffic</em>. Available at <a href="http://www.transtats.bts.gov/TRAFFIC">www​.transtats​.bts​.gov/​T​R​AFFIC</a>.</p> <p class="REF" id="ref023">World Bank (2019) <em>World Development Indicators</em>. Available at <a href="http://databank.worldbank.org/wdi">http://​data​bank​.world​bank​.org/wdi</a>.</p> <p class="REF" id="ref024">Yanikkaya, H. (2003) “Trade Openness and Economic Growth: A Cross‐​Country Empirical Investigation.” <em>Journal of Development Economics</em> 72 (1): 57–89.</p> <p class="FTN" id="en1"><sup><a href="#pn1">1</a></sup> The 21 high‐​income countries that constitute the West plus Japan are Australia, Austria, Belgium, Canada, Switzerland, Germany, Denmark, Spain, Finland, France, United Kingdom, Ireland, Iceland, Italy, Japan, Luxembourg, Netherlands, Norway, New Zealand, Sweden, and the United States.</p> <p class="FTN1" id="en2"><sup><a href="#pn2">2</a></sup> Both figures are in 2011 U.S. dollars; see Hammond (<a href="#ref009">2019</a>) for details.</p> <p class="FTN1" id="en3"><sup><a href="#pn2">3</a></sup> See Levinson (<a href="#ref011">2006</a>) for additional details on how the development of the steel container changed the international shipping industry.</p> <p class="FTN1" id="en4"><sup><a href="#pn4">4</a></sup> These data are available from the World Bank Databank (<a href="#ref023">2019</a>).</p> <p class="FTN1" id="en5"><sup><a href="#pn5">5</a></sup> Specifically, the OECD series is the CIF-FOB margin — the total cost of bringing a shipment into the United States including insurance and freight (called CIF), minus the FOB value (value of the shipment not including the cost of insurance and freight) all divided by CIF.</p> <p class="FTN1" id="en6"><sup><a href="#pn5">6</a></sup> The U.S. Census data on the employment of longshoremen and stevedores provides additional evidence that the use of steel containers and mechanized methods for loading and unloading substantially reduced labor costs during this same period. Even though the volume of international trade of the United States increased more than fourfold during the period, employment in this job category declined from 64,340 in 1960 to 13,550 in 2000, a 79 percent reduction during the four decades (<a href="#ref020">U.S. Bureau of the Census 1961</a>, <a href="#ref021">2001</a>).</p> <p class="FTN1" id="en7"><sup><a href="#pn7">7</a></sup> The Penn World Table data were employed because they provide real GDP and international trade data back to 1950. Later, the World Bank data will be employed to test for robustness during more recent time periods.</p> <p class="FTN1" id="en8"><sup><a href="#pn7">8</a></sup> The countries formed from the former Soviet Union, Yugoslavia, and Czechoslovakia were omitted because of the absence of their data prior to the 1990s. These countries constituted two‐​thirds of the omitted population.</p> <p class="FTN1" id="en9"><sup><a href="#pn9">9</a></sup> Merchandise trade does not include trade of services. The merchandise trade figures generally comprise about three‐​fourths of total international trade, including services. The data for the average growth rate begins in 1950. However, because of the 15‐​year moving average, the displayed data begins in 1965.</p> <p class="FTN1" id="en10"><sup><a href="#pn10">10</a></sup> The World Bank provides international trade data for goods and services back to 1960. Using these data, the international trade of the nongeographically disadvantaged developing group summed to 56 percent of the world total in 2017, a slightly larger share than for merchandise trade. Moreover, the increase in the World Bank trade share for goods and services of the 73 developing countries during 1960–2017 was even larger than the increase in the merchandise trade figures of the Penn World Table.</p> <p class="FTN1" id="en11"><sup><a href="#pn11">11</a></sup> The decades were, respectively, a 2.6 percent growth rate for the United States during the 1870s and 2.1 percent for the United Kingdom during the 1920s.</p> <p class="FTN1" id="en12"><sup><a href="#pn12">12</a></sup> In 2015, the cross country Gini coefficient for the world was 0.466, down from a high of 0.604 in 1980. The 2015 cross‐​country Gini coefficient was lower than the figure in 1913 (0.495). See Gwartney, Connors, and Montesinos (<a href="#ref007">2019</a>).</p> </div> Wed, 05 Feb 2020 03:00:00 -0500 Joseph Connors, James D. Gwartney, Hugo M. Montesinos https://www.cato.org/cato-journal/winter-2020/transportation-communication-revolution-50-years-dramatic-change-economic The Effect of War on Economic Growth https://www.cato.org/cato-journal/winter-2020/effect-war-economic-growth Clifford F. Thies, Christopher F. Baum <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>With the collapse of the Soviet Union, it was thought that major wars had become obsolete (<a href="#ref027">Mueller 1989</a>) and perhaps regional conflicts might be brought under control (<a href="#ref008">Cederman, Gleditsch, and Wucherpfennig 2017</a>). But, while the level of violence declined, the number of wars in the world appears to have reached a&nbsp;new steady state. A&nbsp;world that was once organized by East‐​West rivalry is now characterized by ethno‐​religious conflicts, as well as by spontaneously arising transnational terrorist organizations and criminal gangs.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>For various reasons, economists have become interested in investigating the causes and effects of war and other armed conflict (e.g., <a href="#ref009">Coyne and Mathers 2011</a>).</p> <p>This article uses a consistent measurement of these forms of violence across space and time to conduct a rigorous quantitative analysis of the effect of war on economic growth.</p> <h2>Recent History of War</h2> <p>As shown in <a href="#fig10_1">Figure 1</a>, from the end of World War II to the early 1990s, there was an upward trend of armed conflict in the world. Many of these armed conflicts were wars of independence, some tinged by the struggle between communism and democracy that characterized the Cold War period. Examples of such wars include the French‐​Indochina War of 1946 to 1954 and the U.N.-North Korea War of 1950 to 1953.</p> <p align="center" id="fig10_1"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-10-figure-1.jpg" class=" lozad" /></p> <p>Other such wars during the Cold War period include the Soviet invasions of Hungary in 1956 and of Czechoslovakia in 1968, the Romanian Revolution of 1989, and wars and other armed conflicts following dissolutions of the U.S.S.R. and of Yugoslavia. In Asia, the Chinese invasion of Tibet of 1950, the Cultural Revolution from 1966 to 1976, and communist insurgencies in various countries of southeast Asia marked the Cold War period.</p> <p id="pn1">In Africa, independence was achieved by many countries only following war or some other violent resistance to continued colonial rule. In Angola, the war of independence lasted from 1961 to 1974. This and similar wars in Mozambique and Guinea‐​Bissau were ended only following a military coup in Portugal. Subsequently, a civil war commenced in Angola that lasted until 2002, with the factions engaged in this civil war supported by outside countries from either the eastern or the western bloc. In Algeria, a war of independence lasted from 1954 to 1962. This war ended the vision of France for transforming its once vast colonial empire into so many overseas departments.<sup><a href="#en1">1</a></sup> Other conflicts during the Cold War period included the suppression of dissidents by various non‐​democratic regimes and ethnic‐​based conflicts.</p> <p>Following the dissolution of the Soviet Union, the number of on‐​going wars fell. From a peak of 49, the number dipped to 24. Since then, the number of ongoing wars has fluctuated in the high 20s. In addition, the dominant kinds of wars shifted to conflicts related to ethnic and religious differences. Among these are civil wars, insurgencies, and other violence involving radical Islamic terrorism. During the past several years, the more significant conflicts have involved Afghanistan, Colombia, the Democratic Republic of Congo, Iraq, Mexico, Myanmar, Nigeria, Pakistan, Somalia, Sudan, Syria, and Yemen.</p> <h2>Quantifying War</h2> <p>Until recently, wars were treated as episodic events. But, with the development of data sets detailing the dates, belligerents, and possibly also the magnitudes of war and other armed conflicts, the causes and consequences of war were made amenable to quantitative analysis (e.g., <a href="#ref002">Auvinen 1997</a>, <a href="#ref010">Ellingsen and Gleditsch 1997</a>, <a href="#ref020">Hegre et al. 2001</a>, <a href="#ref042">Zanger 2000</a>).</p> <p>One of the first such data sets is “Correlates of War” (<a href="#ref036">Small and Singer 1982</a>). With this data set, wars are treated as dichotomous, the defining criterion being at least 1,000 battle deaths over a 12‐​month period. This data set has been periodically updated. Its fourth edition covers the period 1816 to 2010 (<a href="#ref034">Sarkees and Wayman 2010</a>).</p> <p>A second data set — compiled by the Uppsala Conflict Data Program (UCDP) and Peace Research Institute Oslo (PRIO) — lowered the threshold defining war to 25 battle deaths over the course of a year. This data set initially tracked wars in real time starting in 1989. Later, it was retrospectively backdated to 1946 (<a href="#ref015">Gleditsch et al. 2002</a>). This data set has likewise been periodically updated (e.g., <a href="#ref019">Harbom, Melander and Wallensteen 2008</a>).</p> <p>Both of these data sets treat war as a dichotomous event, the first with a relatively high threshold and the second with a relatively low one. These thresholds can have very different meanings for countries depending on their size. In addition, advances in the medical treatment of wounded soldiers has significantly lowered the ratio of battle deaths to wounded for more advanced armies. Defining war as a dichotomous event according to the number of battle deaths should be considered problematic.</p> <p>A data set that includes a judgment as to the magnitude of a war has been developed by the Center for Systemic Peace (<a href="#ref026">Marshall and Elzinga‐​Marshall 2017</a>), covering the period 1946 to 2017. Magnitude 6 and 7 wars roughly correspond to the wars included in the Correlates of War data set, and the lesser, Magnitude 1 to 5 wars and other armed conflicts roughly correspond to the other wars included in UCDP-PRIO data set. Among the Magnitude 7 wars is the U.S.-Vietnam War of 1964–73 (from the standpoint of Vietnam), and among the lesser wars and other armed conflicts are the sectarian conflict in Northern Ireland of 1969–94 and the insurgency in Honduras of 1981–86. These data are displayed in <a href="#fig10_1">Figure 1</a>, with the order of magnitude arrayed from greatest (Magnitude 6 and 7) to least (Magnitude 1).</p> <p>From the same source, a data set on coups and other forms of political instability is available. In addition to changes in government brought about by coups, changes caused by assassination, ouster by foreign forces, victory by rebel forces, and forced resignation are included. In this article, “coup” includes all of these.</p> <p>To briefly comment on the other data sets used in this article, GDP per capita is taken from the Maddison project (<a href="#ref006">Bolt et al. 2018</a>). These data are real GDP per capita based on a common international price survey. Accordingly, these data are related across countries on the basis of purchasing power rather than on the basis of exchange rates. The Maddison project continues the work of Angus Maddison (<a href="#ref023">1995</a>, <a href="#ref024">2001</a>, <a href="#ref025">2006</a>).</p> <p>The Economic Freedom Index is from the Fraser Institute (<a href="#ref017">Gwartney, Lawson, and Hall 2017</a>). The original data set covered the period 1975 to 1995 in five‐​year increments (<a href="#ref016">Gwartney, Lawson, and Block 1996</a>), and has since then been updated annually in real time. The index has recently been backdated to 1950, in five‐​year increments, by Murphy and Lawson (<a href="#ref029">2018</a>). The five‐​year increments of the original and retrospective portions of this data set dictate the periodicity of this study. The index of economic freedom ranges from 1 to 10, where 1 represents no economic freedom and 10 maximum economic freedom. It is a composite of many underlying measures of government involvement in the economy.</p> <p>The index of political freedom is from Freedom House and is based on 7‐​point scales for both civil liberty and political freedom, where (1,1) is most free and (7,7) least free. The index is calculated as 100*(14 2 the sum of the two scales)/12.</p> <p><a href="#tbl10_1">Table 1</a> presents some summary statistics for GDP per capita, economic freedom, war, and coup. Notice that wars and coups are not rare. Regarding war, 24 percent of the country‐​year observations have a nonzero value. A nonzero value indicates that a country had at least one war or other armed conflict during the prior five years. Regarding coups, the comparable number is 26 percent. The percent of observations having a nonzero entry for either war or coup is 40. These large percentages impel consideration of war and coup in cross‐​national studies.</p> <p align="center" id="tbl10_1"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-10-table-1.jpg" class=" lozad" /></p> <h2>War and GDP per Capita</h2> <p>While wars are destructive of physical and human capital, the impact of war on GDP per capita is unclear. This ambiguity is fundamentally due to the way national income accounting deals with killing people and destroying things during war. Producing weapons and munitions is counted positively, while killing people and destroying things is not counted at all.</p> <p id="pn2">On the one hand, war can increase GDP per capita by reducing unemployment and by shifting people from family formation and other nonmarket activities into wartime production.<sup><a href="#en2">2</a></sup> On the other hand, even with the failure to account for the destruction of physical and human capital or the loss of nonmarket activity, war can lower GDP per capita by reducing labor and total factor productivity through the destruction of existing physical and human capital and by reducing investment in new physical and human capital. War can also reduce GDP per capita by reducing gains from both domestic and foreign trade.</p> <p>Conceptually, the total cost of war includes three parts: (1) the opportunity cost of the resources used to prosecute war, (2) the loss of lives and destruction of physical and human capital during the war, and (3) the reduction of GDP per capita as measured during and following the war. The focus of this study is on the third part.</p> <p>In fact, empirical findings of the impact of war on GDP have been inconsistent. Barro (<a href="#ref003">1991</a>) finds that coups and assassinations degrade the growth rate of GDP per capita. Barro and Lee (<a href="#ref004">1993</a>), among others, confirm the finding regarding political instability, but find that war has an insignificant impact on growth. Jong‐​A‐​Pin (<a href="#ref022">2009</a>), in a review of the literature, found that political instability affects growth but war does not. Even so, Murdoch and Sandler (<a href="#ref028">2004</a>) find that civil wars negatively impact the growth rate of GDP per capita.</p> <p>A second line of inquiry suggests that war impacts the economy negatively. This line of inquiry examines the reaction of financial markets to war events and began with studies of the impacts of U.S. Civil War events on currency values (<a href="#ref038">Weidenmier 2002</a>; <a href="#ref040">Willard, Guinnane, and Rosen 1996</a>). This method has been used to investigate the impact of war on an expanding list of financial instruments over the course of an increasingly diverse set of wars (e.g., <a href="#ref007">Burdekin 2006</a>, <a href="#ref013">Ferguson 2006</a>, <a href="#ref014">Frey and Waldenstrom 2004</a>, <a href="#ref031">Pecquet and Thies 2010</a>, <a href="#ref039">Weidenmier and Oosterlinck 2007</a>). Unfortunately, the impacts of war events on currency and debt values are convoluted by the possibilities of inflation and repudiation. The impacts of war events on stock market indexes seem more clearly due to the impact of war on real economic activity. Schneider and Troeger (<a href="#ref035">2006</a>) find such impacts in their study of stock market indexes during three recent wars. The availability of a measure of the magnitude of wars enables more precise analysis.</p> <h2>Econometric Analysis</h2> <p id="pn3"><a href="#tbl10_2">Table 2</a> reports the results of regression analysis of (the natural logarithm of) per capita GDP for all the major countries of the world, observed every five years from 1955 to 2015, where all data are available. The regressions are calculated as dynamic panel data models using what has come to be known as the Arellano–Bond (<a href="#ref001">1991</a>) method.<sup><a href="#en3">3</a></sup> This method is well suited for unbalanced panel data sets with a large number of cross‐​sectional units and a small number of longitudinal units. While this method exploits certain characteristics of such panel data sets to gain efficiency in estimating the parameters of a model, there are potential problems that are addressed by test statistics.</p> <p align="center" id="tbl10_2"><img data-src="https://www.cato.org/sites/cato.org/files/images/cato-journal/winter-2020/cj-v40n1-10-table-2.jpg" class=" lozad" /></p> <p>Among the explanatory variables are the contemporaneous war and coup measures, along with one or more of their lagged values. Other explanatory variables include the lagged value of the dependent variable (considered to be correlated with the equation error when differenced) and of the lagged values of the economic and political freedom indexes.</p> <p>All versions of the model indicate that Magnitude 7 wars lower per capita GDP significantly, by 16 to 24 percent. (Lower magnitude wars have lesser effects.) Coups also have a consistently negative impact effect on GDP per capita, depressing per capita GDP by 8 or 9 percent across the four versions of the model. The sum of the dynamic effects of wars and of coups are given in <a href="#tbl10_2">Table 2</a>, along with their standard errors and t‐​statistics. The sum of the impacts of war is significant at the 95 percent level for all specifications, while the sum of the impacts of coups is significant in specifications 3 and 4.</p> <p>With regard to the institutional variables, economic freedom is found to have a significant, positive effect on per capita GDP, while political freedom is not significant. The positive impact of economic freedom on economic growth is a common finding. Political freedom has had mixed results in analysis of economic growth (<a href="#ref012">Farr, Lord, and Wolfenbarger 1998</a>; <a href="#ref033">Roll and Talbott 2003</a>; <a href="#ref037">Thies 2007</a>; <a href="#ref041">Xu and Li 2008</a>; a survey is provided by <a href="#ref011">Fabro and Aixala 2012</a>).</p> <p>While the Arellano–Bond method is well‐​suited for the analysis of this kind of unbalanced panel data set, there are some potential problems. The small number of longitudinal units obviates the use of fixed effects because of Nickell (<a href="#ref030">1981</a>) bias. Instead of specifying fixed effects, the Arellano‐​Bond method implicitly removes unobserved heterogeneity through first‐​differencing.</p> <p>The first test of the appropriateness of this method, the Arellano‐​Bond AR(2) test, examines if there is second‐​order serial correlation in the residuals by the cross‐​sectional unit (in this case, by country). The second test of the appropriateness of this method, the Hansen (<a href="#ref018">1982</a>) <em>J</em> test of overidentifying restrictions, examines the correlation of the residuals with the internally generated instruments used to identify the right‐​hand side endogenous variables (in this case, the lagged dependent variable). Both tests fall short of the standard level of significance in each of the four versions of the model, providing support for our findings.</p> <p>As with prior research, this article finds that political instability depresses economic growth. In contrast to prior research, this article also finds that war depresses economic growth. Critical to the latter finding is the use of a large panel data set in which countries are observed every five years from 1955 to 2015. In unreported ordinary least squares (OLS) regressions, in any one cross‐​section, war is only once (in the 1980 cross‐​section) found to significantly depress GDP per capita. In contrast, coups are found to significantly depress GDP per capita seven times (in the 1955, 1975, 1980, 1985, 2000, 2005, and 2010 cross‐​sections). These unreported regressions essentially replicate prior research.</p> <h2>Conclusion</h2> <p>The cost of war is largely masked by national income accounting, which ignores the loss of lives and the destruction of physical and human capital associated with war. Moreover, resources devoted to war are treated as final goods or services instead of as costs of production. This article makes no adjustment to these aspects of national income accounting. It looks only at the impact of war on GDP per capita as measured. It questions the assumption of many that war is good for business, presumably on the basis that war increases employment and production.</p> <p>Careful measurement of war in the context of a large data set indicates that war is not good for business. In addition to the loss of lives and destruction of physical and human capital ignored by national income accounting, and the mistreatment of the cost of war as a positive value by national income accounting, the tendency is for war to reduce GDP per capita as measured. Countries that suffer from war underperform in terms of production and also underperform in terms of consumption. GDP per capita falls because of lower labor and total factor productivity, presumably due to the destruction of existing physical and human capital, the lack of investment in new physical and human capital, and because of reduced gains from both internal and external trade.</p> <p>War and other forms of armed conflict should be considered a major impediment to the economic development of low‐​income countries, many of which are beset by ethnic and religious strife. Among policy options are the protection of moral autonomy at the individual level in pluralistic societies and devolution of government. Devolution can fall short of full sovereignty as in the case of Bangsamoro Autonomous Region in the Philippines, as well as fully sovereign new countries as in the case of Timor‐​Leste (<a href="#ref032">Roeder 2018</a>). Federal, regional, and global arrangements can secure the advantages of specialization and trade; economies of scale, labor, and capital flows; and robust competition and innovation for even small places. Democratic processes can provide for peaceful changes in government. Market economies can provide meaningful opportunities for both ordinary and talented individuals. Constructive engagement can bring about better policy options in the future. But, just because there may not be a political solution for a place torn by ethnic and religious divisions does not mean there is a military solution.</p> <h2>References</h2> <p class="REF_F" id="ref001">Arellano, M., and Bond, S. 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(2008) “Dyadic Dimensions of Armed Conflict, 1946–2007.” <em>Journal of Peace Research</em> 45 (5): 697–710.</p> <p class="REF" id="ref020">Hegre, H.; Ellingsen, T.; Gates, S.; and Gleditsch, N. P. (2001) “Toward a Democratic Civil Peace? Democracy, Political Change, and Civil War, 1816–1992.” <em>American Political Science Review</em> 95 (1): 33–46.</p> <p class="REF" id="ref021">Higgs, R. (2006) “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War.” In <em>Depression, War and the Cold</em> War, 3–29. New York: Oxford University Press.</p> <p class="REF" id="ref022">Jong‐​A‐​Pin, R. (2009) “On the Measurement of Political Instability and Its Impact on Economic Growth.” <em>European Journal of Political Economy</em> 25 (1): 15–29.</p> <p class="REF" id="ref023">Maddison, A. (1995) <em>Monitoring the World Economy 1820–1992.</em> Paris: OECD.</p> <p class="REF" id="ref024">_________ (2001) <em>The World Economy: A Millennial Perspective.</em> Paris: OECD.</p> <p class="REF" id="ref025">_________ (2006) <em>The World Economy: Historical Statistics.</em> Paris: OECD.</p> <p class="REF" id="ref026">Marshall, M. G., and Elzinga‐​Marshall, G. (2017) <em>Global Report 2017: Conflict, Governance and State Fragility</em>. Vienna, Va.: Center for Systemic Peace.</p> <p class="REF" id="ref027">Mueller, J. (1989) <em>Retreat from Doomsday: The Obsolescence of Major War</em>. New York: Basic Books.</p> <p class="REF" id="ref028">Murdoch, J. C., and Sandler, T. (2004) “Civil Wars and Economic Growth: Spatial Dispersion.” <em>American Journal of Political Science</em> 48 (1): 138–51.</p> <p class="REF" id="ref029">Murphy, R. H., and Lawson, R. A. (2018) “Extending the Economic Freedom of the World Index to the Cold War Era.” <em>Cato Journal</em> 38 (1): 265–84.</p> <p class="REF" id="ref030">Nickell, S. (1981) “Biases in Dynamic Models with Fixed Effects.” <em>Econometrica</em> 49 (6): 1417–26.</p> <p class="REF" id="ref031">Pecquet, G. M., and Thies, C. F. (2010) “Texas Treasury Notes and the Mexican‐​American War: Market Responses to Diplomatic and Battlefield Events.” <em>Eastern Economic Journal</em> 36 (1): 88–106.</p> <p class="REF" id="ref032">Roeder, P. A. (2018) <em>National Secession: Persuasion and Violence in Independence Campaigns.</em> Ithaca, N.Y.: Cornell University Press.</p> <p class="REF" id="ref033">Roll, R., and Talbott, J. (2003) “Political Freedom, Economic Liberty, and Prosperity.” <em>Journal of Democracy</em> 14 (3): 75–89.</p> <p class="REF" id="ref034">Sarkees, M. S., and Wayman, F. (2010) <em>Resort to War: 1816–2007</em>. Washington: CQ Press.</p> <p class="REF" id="ref035">Schneider, G., and Troeger, V. E. (2006) “War and the World Economy: Stock Market Reactions to International Conflicts.” <em>Journal of Conflict Resolution</em> 50 (5): 623–45.</p> <p class="REF" id="ref036">Small, M., and Singer, J. D. (1982) <em>Resort to Arms: International and Civil War, 1816–1980.</em> Beverly Hills, Calif.: Sage.</p> <p class="REF" id="ref037">Thies, C. F. (2007) “Political and Economic Freedom Reconsidered.” <em>Journal of Private Enterprise</em> 22 (2): 95–118.</p> <p class="REF" id="ref038">Weidenmier, M. D. (2002) “Turning Points in the U.S. Civil War: Views from the Grayback Market.” <em>Southern Economic Journal</em> 68 (4): 875–90.</p> <p class="REF" id="ref039">Weidenmier, M. D., and Oosterlinck, K. (2007) “Victory or Repudiation? The Probability of the Southern Confederacy Winning the Civil War.” NBER Working Paper No. 13567.</p> <p class="REF" id="ref040">Willard, K. L.; Guinnane, T.; and Rosen, H. S. (1996) “Turning Points in the Civil War: Views from the Greenback Market.” <em>American Economic Review</em> 86 (4): 1001–18.</p> <p class="REF" id="ref041">Xu, Z., and Li, H. (2008) “Political Freedom, Economic Freedom, and Income Convergence: Do Stages of Economic Development Matter?” <em>Public Choice</em> 135 (3–4): 183–205.</p> <p class="REF" id="ref042">Zanger, S. C. (2000) “A Global Analysis of the Effect of Political Regime Changes on Life Integrity Violations, 1977–93.” <em>Journal of Peace Research</em> 37 (2): 213–33.</p> <p class="FTN" id="en1"><sup><a href="#pn1">1</a></sup> Nevertheless, France has incorporated 10 overseas departments and “collectivities” into France, including the islands of Martinique and Guadeloupe in the Caribbean Sea, Réunion in the Indian Ocean, and French Guiana on the mainland of South America.</p> <p class="FTN1" id="en2"><sup><a href="#pn2">2</a></sup> Higgs (<a href="#ref021">2006</a>) thus describes the high levels of employment and production during World War II as a false prosperity.</p> <p class="FTN1" id="en3"><sup><a href="#pn3">3</a></sup> Baum (<a href="#ref005">2019</a>) provides a review of the development of dynamic panel data models.</p> </div> Wed, 05 Feb 2020 03:00:00 -0500 Clifford F. Thies, Christopher F. Baum https://www.cato.org/cato-journal/winter-2020/effect-war-economic-growth Personal Freedom Under Attack in India https://www.cato.org/publications/commentary/personal-freedom-under-attack-india Tanja Porčnik <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>To quell a&nbsp;nationwide backlash against the Citizenship (Amendment) Act (CAA) that the country’s parliament passed on December 12th, Indian authorities denied people the right to protest and raise their voices. In doing that, Indian authorities have not only banned demonstrations but also shut down internet service and mobile phone networks across the country. Notably, the assault on personal freedom in India has been undergoing for a&nbsp;while. In the just‐​released annual <a href="https://www.fraserinstitute.org/studies/human-freedom-index-2019" target="_blank"><em>Human Freedom Index</em></a>, India ranks 108th on personal freedom, which is considerably lower than before the Modi government took over in the summer of 2014.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p><strong>So what is the <em>Human Freedom Index</em>?</strong></p> <p>My coauthor Ian Vásquez and I&nbsp;use 76 distinct indicators to devise a&nbsp;composite scoring system in an attempt to capture the degree to which people are free to enjoy fundamental rights&nbsp;such as freedom of speech, religion, association and assembly, and also measures freedom of movement, women’s freedoms, crime and violence, and legal discrimination against same‐​sex relationships.&nbsp;The report is co‐​published by the Fraser Institute in Canada, the Cato Institute in the United States, and the Liberales institut in Germany.</p> <p>In this year’s index, we again rank New Zealand and Switzerland as the two freest countries in the world, while we again position Venezuela and Syria last. Selected countries rank as follows: Canada (4th), Australia (5), Germany (8), Sweden (11), United Kingdom (14), United States (15), Japan (25), South Korea (27), Chile (28), France (33), South Africa (64), Argentina (77), Kenya (79), Mexico (92), India (94), Brazil (109), Russia (114), Turkey (122), Saudi Arabia (149), and Iran (154).</p> <p>Within the South Asia region, India stands at the 6th position, trailing Singapore, Cambodia, Philippines, Indonesia, and Timor‐​Leste, while being ahead of Thailand, Bhutan, Malaysia, Nepal, and other countries in the region. The report also reveals that the areas where human freedom was attacked the most in India in 2017 were freedom of religion, the rule of law, the legal system, and protection of property rights. Those are worrisome findings also because the rule of law plays a&nbsp;fundamental role in upholding liberty.</p> <p>The index offers an examination of global, regional, and country trends. This year’s index confirms the trend of global freedom diminishing from 6.90&nbsp;in 2016 to 6.89&nbsp;in 2017. Indeed, with the rise of populism and hybrid forms of authoritarianism that have afflicted countries on every continent in the past decade, the rights and freedoms of the citizens are under assault in many corners of the globe.</p> <p>At a&nbsp;regional level, where levels of freedom<strong> </strong>vary widely in the index, the highest average ratings were North America, Western Europe, and East Asia. On the other hand, the lowest average ratings were in South Asia, sub‐​Saharan Africa, and the Middle East &amp;&nbsp;North Africa.</p> <p>At a&nbsp;country level, human freedom tumbles in more countries than not, with some 88 countries decreasing their freedom ratings, whereas 70 countries increased it in the last observed year. During this period, we have recorded the most significant deteriorations in human freedom in Angola, Seychelles, Venezuela, Brunei Darussalam, and Israel. On the positive side, countries that saw improvement in their level of human freedom most were Belarus, Timor‐​Leste, Chad, Gabon, Suriname. That confirms that freedom has not only taken root in a&nbsp;diverse set of societies, but it is also spreading in countries around the globe.</p> <p><strong>What about India?</strong></p> <p>With a&nbsp;score of 6.64 out of 10, India ranks 94th among 162 countries and territories included in the <em>Human Freedom Index</em>. On economic freedom, India scores 6.91 (79th rank), while on personal freedom 6.37 (108th rank globally). With the perspective of time, we can see that during the Narendra Modi government India has witnessed a&nbsp;noticeable improvement in the level of economic freedom, going from 6.44&nbsp;in 2013 to 6.91&nbsp;in 2017. At the same time, unfortunately, the Modi government has significantly diminished the level of personal freedom from 6.93&nbsp;in 2013 to 6.37&nbsp;in 2017. Notably, freedom of religion has been under attack the most. Free societies respect the right to practice a&nbsp;religion of one’s choosing. The exercise of religion can be both a&nbsp;supremely private matter involving a&nbsp;person’s strongest beliefs and a&nbsp;social affair practiced in an organized way among larger groups.</p> </div> , <figure class="figure overflow-hidden figure--default figure--no-caption responsive-embed-no-margin-wrapper"> <div class="figure__media"> <img width="680" height="242" alt="Porcnik-image.jpg" class="lozad component-image" data-srcset="/sites/cato.org/files/styles/pubs/public/2020-01/Porcnik-image.jpg?itok=nyH6S8Nh 1x, /sites/cato.org/files/styles/pubs_2x/public/2020-01/Porcnik-image.jpg?itok=RKa--VMc 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/2020-01/Porcnik-image.jpg?itok=nyH6S8Nh" typeof="Image" /> </div> </figure> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>In the Index, we use three components to measure freedom of religion. The first two provide an insight into why this freedom has been considerably under assail in India during the Modi government. The first component rates the freedom to establish and operate religious organizations, where India’s score dropped from 10.0&nbsp;in 2013 to 5.0&nbsp;in 2017. The next component relates to infringements on religious freedom characterized by harassment and physical hostility by individuals, members of opposing religions and other groups in society, where India again visibly decreased its score from 9.2&nbsp;in 2013 to 5.5&nbsp;in 2017. Last, we measure restrictions on religion that are of a&nbsp;legal or regulatory nature, where we documented India’s improvement from 5.4&nbsp;in 2013 to 5.9&nbsp;in 2017.</p> <p>Finally, restrictions on freedom of religion have been the source of some of the bloodiest and most drawn‐​out conflicts throughout history. Alas, a&nbsp;recently passed citizenship law in India and subsequent actions by its authorities are animating discord over what has been a&nbsp;years‐​long attack on personal freedom in India.</p> </div> Wed, 29 Jan 2020 09:20:17 -0500 Tanja Porčnik https://www.cato.org/publications/commentary/personal-freedom-under-attack-india Veronique de Rugy discusses the resurgence of industrial policy in the US at the Bases Foundation https://www.cato.org/multimedia/media-highlights-tv/veronique-de-rugy-discusses-resurgence-industrial-policy-us-bases Tue, 14 Jan 2020 11:01:26 -0500 Veronique de Rugy https://www.cato.org/multimedia/media-highlights-tv/veronique-de-rugy-discusses-resurgence-industrial-policy-us-bases Veronique de Rugy gives a lecture on economist Don Lavoie and industrial policy hosted by the Bases Foundation https://www.cato.org/multimedia/media-highlights-tv/veronique-de-rugy-gives-lecture-economist-don-lavoie-industrial Tue, 14 Jan 2020 10:56:37 -0500 Veronique de Rugy https://www.cato.org/multimedia/media-highlights-tv/veronique-de-rugy-gives-lecture-economist-don-lavoie-industrial Johan Norberg discusses the 2010s on Free to Choose Media’s Dead Wrong https://www.cato.org/multimedia/media-highlights-tv/johan-norberg-discusses-2010s-free-choose-medias-dead-wrong Thu, 09 Jan 2020 10:15:25 -0500 Johan Norberg https://www.cato.org/multimedia/media-highlights-tv/johan-norberg-discusses-2010s-free-choose-medias-dead-wrong Steve H. Hanke discusses fiscal austerity on CNBC’s Squawk on the Street https://www.cato.org/multimedia/media-highlights-tv/steve-h-hanke-discusses-fiscal-austerity-cnbcs-squawk-street-cnbcs Thu, 26 Dec 2019 13:16:08 -0500 Steve H. Hanke https://www.cato.org/multimedia/media-highlights-tv/steve-h-hanke-discusses-fiscal-austerity-cnbcs-squawk-street-cnbcs Rep. Andy Barr (R-KY) cites Cato’s Human Freedom Index on C-SPAN https://www.cato.org/multimedia/media-highlights-tv/rep-andy-barr-r-ky-cites-catos-human-freedom-index-c-span Sat, 21 Dec 2019 11:11:10 -0500 Cato Institute, Ian Vásquez, Tanja Porčnik https://www.cato.org/multimedia/media-highlights-tv/rep-andy-barr-r-ky-cites-catos-human-freedom-index-c-span Boris Doesn’t Need an Ideology – Just Remove the Barriers to Growth https://www.cato.org/publications/commentary/boris-doesnt-need-ideology-just-remove-barriers-growth Ryan Bourne <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>It’s difficult to pigeonhole Boris Johnson’s economic worldview. He&nbsp;<a href="https://www.telegraph.co.uk/politics/2019/12/13/earthquake-have-created-boris-johnsons-victory-speech-tory-headquarters/" target="_blank">calls his Cabinet a&nbsp;One Nation government</a>, given its ambition for&nbsp;higher public service spending, regional infrastructure investment and minimum wage increases. His musings on regulation, free trade and the nanny state often sound liberal, if not libertarian.</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>To confuse matters more, his proposed state aid laws suggest he’s partial to some old‐​school national collectivist thinking too. Anyone hoping for a&nbsp;principles‐​based coherent economic agenda during this Parliament will be disappointed.</p> <p>One concept the prime minister does appear to intuitively understand though is the importance of economic growth. His desire to “unleash the potential” of the country might not be based on theoretical models, like Gordon Brown’s penchant for “post‐​neoclassical endogenous growth theory”.</p> <p>But in acknowledging wealth must be produced before being spent, Johnson understands that growth is the essential precondition for the rising wages, regional levelling‐​up and better public services promised in today’s Queen’s Speech.</p> <p>A legacy of the Blair and Brown era is that we spend inordinate time in politics debating distributional issues, analysing “winners and losers”. Rich are pitched against poor, young against old, North against South. Deficit reduction from 2010 necessitated tough spending choices, adding to this zero‐​sum economic framing in respect of government departments or local government – the idea that one person’s gain must be another’s loss. </p> <p>Yet faster economic growth eases these constraints. It allows “having your cake and eating it,” as Boris might say. An economy growing more quickly means stronger public finances, faster wage growth, and people far less occupied with comparing their spoils. Positive sum, not zero sum.&nbsp;</p> <p>The central economic problem the UK has faced over the past decade is simply too little growth. Whether it was the cause or simply reflective of a&nbsp;past unsustainable trend, the crisis’s aftermath heralded&nbsp;<a href="https://www.telegraph.co.uk/business/2018/05/07/uk-productivity-grows-strongly-still-lags-behind-europe/" target="_blank">a&nbsp;period of dire productivity growth performance</a>.</p> <p>GDP per capita is over 20pc below where it would have been had pre‐​crisis productivity trends continued, with annual growth falling from over 2pc to just over 0.4pc.&nbsp;</p> <p>Forecasters initially predicted a&nbsp;productivity bounceback was just around the corner. But tomorrow never came.&nbsp;Conservative chancellors each year therefore stood at the despatch box to announce weak growth forecasts, before proceeding to do little about it.&nbsp;Then came Brexit.</p> <p>Uncertainty about trading relations and a&nbsp;<a href="https://www.telegraph.co.uk/news/2019/12/11/thirteen-ways-jeremy-corbyn-would-ruin-british-economy/" target="_blank">Corbyn premiership has cast a&nbsp;long shadow over investment</a>&nbsp;and location decisions since 2016. Under these and demographic headwinds, we’ve become so depressingly accustomed to weak growth that its absence barely features in public debate. Which is why Boris’s rhetoric is so encouraging.</p> <p>The positive stock market reaction to his victory suggests seeing off Corbyn and the declining probability of a “no‐​deal” Brexit will deliver somewhat of an investment fillip, as Boris claimed. We might also see some near‐​term macroeconomic stimulus, although any investment projects will have muted economic effects given lead times and the likelihood the Bank of England would offset any demand pressure that raised inflation.&nbsp;</p> <p>Given the size of his majority though, the prime minister’s economic ambitions should extend far beyond delivering a&nbsp;short‐​term sugar rush. With unemployment low and migration likely to be curtailed, the scope for GDP boosts from simply adding workers is diminishing anyway. Robust productivity growth is therefore crucial to deliver the tax revenues and wage increases needed to make Boris’s first term a&nbsp;clear economic success.</p> <p>His team know this, and recognise they have a&nbsp;narrow time frame of electoral goodwill to do something about the contentious land‐​use planning regime, for example. Our byzantine mess of a&nbsp;system constrains economically successful areas from growing, especially through green belts.</p> <p>But it also reduces the prospect of certain firms achieving efficient premises scale in industries such as retail, social care and childcare, due to limited space and/​or high rents.</p> <p>There’s obvious pro‐​investment policy the government could opt for, including letting corporations write off spending on buildings and capital equipment immediately against tax.</p> <p>The litmus test of whether Boris is serious about growth will come from how he intends to repay working‐​class towns he won. The political imperative to be seen to “help” may lead to resources thrown at high street, town and hospital regeneration, as tried and failed under New Labour.</p> <p>Hare‐​brained ideas for government schemes to help locals acquire shop space or incentivise them to stay where they were born are already proliferating. This sort of stuff,&nbsp;<a href="https://www.telegraph.co.uk/technology/2019/12/18/googles-advertising-stranglehold-threatened-big-tech-crackdown/" target="_blank">plus attacks on big tech</a>, is just a&nbsp;form of winner to loser distributional politics Boris should avoid.</p> <p>If you tax success to subsidise failure, you’ll end up with more failure.&nbsp;It doesn’t mean nothing can be done. But new interventions or infrastructure should work with market signals, not against them. Removing bottlenecks to growth or joining areas to thriving markets by better transport infrastructure is what works.</p> <p>Given our population density, economic thinkers Stian Westlake and Sam Bowman think the best way to help poor towns’ residents is to remove government barriers to moving while improving connectivity between successful city hubs and close‐​by towns.</p> <p>While Boris does not have an economic ideology then, the sheer size of his majority has given him an opportunity to crack thorny structural economic challenges.</p> <p>There’s a&nbsp;potential future where he is ruthless in eliminating barriers to growth, makes infrastructure decisions to obtain the biggest bang for the buck, broadens our free trading horizons and improves tax incentives to invest.</p> <p>In that world, GDP is somewhat higher, public service pressures are that bit more manageable and economic opportunity has broadened into the regions of his new voters. Now, that’s a&nbsp;potential worth unleashing.</p> </div> Thu, 19 Dec 2019 18:18:04 -0500 Ryan Bourne https://www.cato.org/publications/commentary/boris-doesnt-need-ideology-just-remove-barriers-growth New Human Freedom Index: U.S. Is 15, New Zealand and Switzerland Freest https://www.cato.org/blog/new-human-freedom-index-us-15-new-zealand-switzerland-freest Ian Vásquez <p>The United States ranks 15 in the <a href="https://www.cato.org/human-freedom-index-new">Human Freedom Index 2019</a> released today by the Cato Institute, the Fraser Institute in Canada, and the Liberales Institut at the Friedrich Naumann Foundation for Freedom in Germany. The five freest jurisdictions are New Zealand, Switzerland, Hong Kong, Canada, and Australia.</p> <p>The annual Index uses 76 indicators of personal, civil, and economic freedom in 162 countries for 2017, the most recent year for which sufficient, globally comparable data are available. The report finds that global freedom has declined slightly since 2008, with more countries (79) seeing a fall in their levels of freedom than seeing an improvement (61).</p> <p>Other selected countries rank as follow: United Kingdom (14), Taiwan (19), Chile (28), France (33), Mauritius (50), South Africa (64), India (94), Russia (114), China (126), Saudi Arabia (149) and Venezuela (161).</p> <p>My coauthor <a href="https://www.cato.org/people/tanja-porcnik">Tanja Porcnik</a> and I also find a strong relationship between economic and personal freedom, suggesting that if you want to live in a country that has high levels of personal freedom, you should choose a place with relatively high levels of economic freedom. Overall freedom is also correlated with significantly higher incomes per capita ($40,171 for the top quartile countries vs. $15,721 for the bottom quartile) and with democracy (see graph below).</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="f1539262-2026-449f-aa34-be545cf7bfc4" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="3a0e0392-361b-405e-a94e-857bbe6eed57" data-type="interactive" data-title="Human Freedom and Democracy, 2017"></div> </div> </div> </p><p>The index allows you to examine regional and country trends. Compared to other free countries, for example, the United States has a low rating for the rule of law, which has experienced a slight deterioration in recent years. Those are worrisome developments given the fundamental role that the rule of law plays in upholding liberty. The effects of populism and especially authoritarian populism on freedom around the globe can be seen in the report. For example, Turkey under Recep Tayyip Erdogan’s increasingly autocratic leadership has seen a notable decline in liberty this decade (see graph). Among ten regions in the world, the largest drop in freedom since 2008 has occurred in the Middle East and North Africa, also the region with the least freedom.</p> <p> <div data-embed-button="embed" data-entity-embed-display="view_mode:media.blog_post" data-entity-type="media" data-entity-uuid="e1eddf97-d5cc-4b1c-9ca9-aa4c12730965" data-langcode="en" class="embedded-entity"> <div class="embed embed--infogram js-embed js-embed--infogram"> <div class="infogram-embed" data-id="8e902614-2410-4cba-8815-28488fc79d7d" data-type="interactive" data-title="Turkey, Ranking over Time"></div> </div> </div> </p><p>Read more about how your country rates, about global freedom trends, and why it matters <a href="https://www.cato.org/human-freedom-index-new">here</a>.</p> Wed, 18 Dec 2019 11:03:17 -0500 Ian Vásquez https://www.cato.org/blog/new-human-freedom-index-us-15-new-zealand-switzerland-freest Human Freedom Index is cited on CNBC https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-cited-cnbc Mon, 16 Dec 2019 13:10:14 -0500 Cato Institute, Ian Vásquez, Tanja Porčnik https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-cited-cnbc The 2010s Have Been Amazing https://www.cato.org/publications/commentary/2010s-have-been-amazing Johan Norberg <div class="lead mb-3 spacer--nomargin--last-child text-default"> <p>The 2010s have been the best decade ever. The evidence is overwhelming. Start with the United Nations Development Report. Framed as a&nbsp;warning about inequality, it plays down the good news: “The gap in basic living standards is narrowing, with an unprecedented number of people in the world escaping poverty, hunger and disease.”</p> </div> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>The World Bank reports that the world‐​wide rate of extreme poverty fell more than half, from 18.2% to 8.6%, between 2008 and 2018. Last year the World Data Lab calculated that for the first time, more than half the world’s population can be considered “middle class.”</p> <p>Health progress has been remarkable. People have better access to water, sanitation, health care and vaccines than ever. The incidence of malaria in Africa declined almost 60% from 2007 to 2017, and antiretroviral therapy reduced HIV/AIDS deaths more than half.</p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>Tin‐​pot strongmen, looting politicians and punctilious bureaucrats make mischief with societies and economies. But mankind creates faster than they can squander, and repairs more than they can destroy.</p> </div> </div> </aside> , <div class="mb-3 spacer--nomargin--last-child text-default"> <p>Global life expectancy increased by more than three years in the past 10&nbsp;years, mostly thanks to prevention of childhood deaths. According to the U.N., the global mortality rate for children under 5&nbsp;declined from 5.6% in 2008 to 3.9% in 2018.&nbsp;A&nbsp;longer perspective shows how far we’ve come. Since 1950, Chad has reduced the child mortality rate by 56%, and it’s the&nbsp;<em>worst‐</em>performing country in the world. South Korea reduced it by 98%.</p> <p>Hasn’t this all come at the cost of a&nbsp;despoiled environment? No. At a&nbsp;certain point developed countries start polluting less. Death rates from air pollution declined by almost a&nbsp;fifth world‐​wide and a&nbsp;quarter in China between 2007 and 2017, according to the online publication Our World in Data.</p> <p>Rich countries use less aluminum, nickel, copper, steel, stone, cement, sand, wood, paper, fertilizer, water, crop acreage and fossil fuel every year, as Andrew McAfee documents in “More From Less.” Consumption of 66 out of 72 resources tracked by the U.S. Geological Survey is now declining.</p> <p>Global warming remains a&nbsp;challenge, but wealthy societies are well‐​positioned to develop clean technologies and to deal with the problems of a&nbsp;changing climate. Annual deaths from climate‐​related disasters declined by one‐​third between 2000-09 and 2010–15, to 0.35 per 100,000 people, according to the International Database of Disasters—a 95% reduction since the 1960s. That’s not because of fewer disasters, but better capabilities to deal with them.</p> <p>Progress isn’t guaranteed. Look how wealthy Venezuela collapsed under the burden of crazy policies. A&nbsp;war between major powers, or a&nbsp;financial crash after a&nbsp;decade of easy money, could throw the world off course. So could never‐​ending trade wars and an unraveling of globalization.</p> <p>Yet we’ve lived through a&nbsp;period of populist revolts and geopolitical tensions, and wherever societies have been open and markets free, scientists, innovators and businesses persisted and made greater progress than ever.</p> <p>That’s the case for optimism. Tin‐​pot strongmen, looting politicians and punctilious bureaucrats make mischief with societies and economies. But mankind creates faster than they can squander, and repairs more than they can destroy.</p> </div> Mon, 16 Dec 2019 09:28:27 -0500 Johan Norberg https://www.cato.org/publications/commentary/2010s-have-been-amazing Diego Zuluaga discusses capitalism and the popularity of socialism on Al Jazeera English’s Upfront https://www.cato.org/multimedia/media-highlights-tv/diego-zuluaga-discusses-capitalism-popularity-socialism-al-jazeera Fri, 06 Dec 2019 10:49:02 -0500 Diego Zuluaga https://www.cato.org/multimedia/media-highlights-tv/diego-zuluaga-discusses-capitalism-popularity-socialism-al-jazeera Human Freedom Index is cited on Bloomberg’s What’d You Miss https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-cited-bloombergs-whatd-you-miss Tue, 19 Nov 2019 11:36:33 -0500 Cato Institute, Ian Vásquez, Tanja Porčnik https://www.cato.org/multimedia/media-highlights-tv/human-freedom-index-cited-bloombergs-whatd-you-miss Scott Lincicome discusses how tariff wars slow down global GDP growth on Power Trading Radio https://www.cato.org/multimedia/media-highlights-radio/scott-lincicome-discusses-how-tariff-wars-slow-down-global-gdp Fri, 15 Nov 2019 10:51:33 -0500 Scott Lincicome https://www.cato.org/multimedia/media-highlights-radio/scott-lincicome-discusses-how-tariff-wars-slow-down-global-gdp