Friday, October 25, 2013

Keys to Economic Development

I recently attended a lecture by a former World Bank official who talked about economic development. Afterwards I asked him what he thought were the key variables that differentiated those countries that had done well in the development game and those that hadn't, especially the "basket cases." He picked three variables: education, corruption, and health. Those happen to be three categories where the US has been falling behind lately, but of course we are still pretty well off in those and other measures despite Tea Party efforts to turn us into a third world country.

Tyler Cowen highlights a new paper which argues that nutritional and training factors played a key role in the fact that Britain became the cradle of the industrial revolution. Of course the subject is endlessly controversial, with plenty of theories to go around, but it's an interesting perspective that might deserve more attention.

From the introduction:

Why was Britain the cradle of the Industrial Revolution? The literature on the topic is quite substantial, and very little of a consensus has been reached since the survey in Mokyr (1999). The dominant schools are divided between those who focus on geographic endowments (such as coal), those who focus on politics and institutions (including the Glorious Revolution), and those who stress Empire and Britain’s colonial successes.

In what follows we present an argument that focuses on the quality of the British labor force. While in the past claims for human capital as an explanation of Britain’s leadership have been dismissed because of its mediocre schooling and literacy rates (Mitch, 1998), we argue that this focuses on the wrong variables. Instead, we highlight two very different dimensions of human capital. One is the physical condition of the average British worker. We will argue that better nutrition made British males grew up on average to be healthier and taller than their continental counterparts. Health and height meant both more physical strength and in all likelihood higher cognitive ability, and hence higher labor productivity. As nutrition was costly, better health can be seen as investment by parents in their children’s human capital. The other is that the distribution of ability and dexterity in Britain was more skewed, so that there was a much larger density in the right tail, that is, a relatively large contingent of highly-skilled and capable technical workers. That contingent may have contained a higher endowment of skills, through a more flexible and effective system of training young men in the apprenticeship system, but what counted above all was its highly skilled mechanics and engineers, who may not have been a large proportion of the labor force.