Saturday, March 08, 2014

Rich Country, Poor Country

Poor Mexico, so far from God, so close to the United States..............attributed to Porfirio Díaz

One of the oldest and thorniest questions in economics is what makes one country rich and another poor. It's not too hard to come up with laundry lists of things that seem to be pluses and others that seem to be minuses. Good government, check. Good education, check. Business friendly legal system, check. Solid economic infrastructure, check. On the negative side: corruption, endemic disease, social conflict and civil war, external interference. So how do you get out of the bad stuff and into the good? That's not easy.

To these lists I would add my sociobiological favorite: low fertility. It appears to be nearly impossible for a country to become and stay rich with a high fertility level and consequent high population growth rate. The most spectacular examples of rapid economic growth occur in countries with low to very low fertility rates. Check out Gapminder World for multiple examples.

In Mexico's case, it's easy to find reasons for it's relative poverty: historical, political, social, and other. It has frequently suffered invasions and massive territorial theft and other interference from its powerful neighbor to the North, not to mention other powers. It has long been ruled by a corrupt oligarchy and suffered frequently from internal conflicts. Poor education and cultural fragmentation are also problems. Finally, many of its most ambitious and talented emigrate to the United States, and frequently stay.

However, its fertility rate is now down to approximately the replacement rate, and infrastructure has been rapidly improving. Corruption is a downer, but a politically influential cement maker can do a good job of promoting road building. I would be a little surprised if Mexico's GDP/capita doesn't improve significantly over the next twenty years.