Jun 25, 2013

Economic Development: Societies can escape the straightjacket of history

Firstly, long-term history, while very important, is not a deterministic straightjacket. Historical variables do not explain all of the variation in income per capita. In Putterman and Weil (2010), the R-squared on state history, agriculture adoption and the fraction of European descent jointly does not exceed 60%. In Comin, Easterly and Gong (2010), the R-squared in regressions of current income or technological sophistication on lagged technologies is never greater than 40%, depending on the exact time frame (see their Table 8B). In Spolaore and Wacziarg (2009), a standard deviation change in genetic distance relative to the world technological frontier accounts for about 35% of the variation in income differences. That leaves a large fraction of variation to be explained by other factors and forces, suggesting that many societies can escape the straightjacket of history. Persistence does not mean perfect, deterministic persistence. While there is significant persistence in the use of advanced technologies over time and space, there have also been significant shifts in the technological frontier, with populations at the periphery becoming major innovators, and former frontier societies falling behind. In a nutshell, while long-term history matters, there is much scope for variations, exceptions and contingencies.
That is from a new published paper by Spolaore & Wacziarg. A draft is here.  

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