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Why Are Poor Countries Poor?

Posted By Barry Ritholtz On September 5, 2007 @ 2:30 pm In Commodities,Economy,Politics,Science | Comments Disabled

Over at Slate [1], Tim Harford has an interesting discussion on a rather intriguing economic question: Why Are Poor Countries Poor?

The answer is less obvious than you might imagine. The usual explanation goes something like this: 

"One very plausible account of why at least some poor countries are poor is that there is no smooth progression from where they are to where they would be when rich. For instance, to move from drilling oil to making silicon chips might require simultaneous investments in education, transport infrastructure, electricity, and many other things. The gap may be too far for private enterprise to bridge without some sort of coordinating effort from government—a "big push."

However, a new line of thinking has bled over into Economics from Physics. It turns out that:

"Rich countries have larger, more diversified economies, and so produce lots of products—especially products close to the densely connected heart of the network. East Asian economies look very different, with a big cluster around textiles and another around electronics manufacturing, and—contrary to the hype—not much activity in the products produced by rich countries. African countries tend to produce a few products with no great similarity to any others."

Anyway, by thinking about this in network terms, the physicists have created a map (infoporn!) of the relationships between different products in an abstract economic space:

Png3000x3536labelslegends [2]

Pretty fascinating thinking that has ramifications for what sort of might want to emphasize to poorer countries . . .


The Product Space and the Wealth of Nations [3]   

Milton Friedman, Meet Richard Feynman [1]
How physics can explain why some countries are rich and others are poor
Tim Harford
Slate, Saturday, Aug. 18, 2007, at 7:07 AM

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URL to article: http://www.ritholtz.com/blog/2007/09/why-are-poor-countries-poor/

URLs in this post:

[1] Slate: http://www.slate.com/id/2171898

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/2007/08/31/png3000x3536labelslegends.png

[3] The Product Space and the Wealth of Nations: http://www.nd.edu/~networks/productspace/index.htm

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