Shoutouts to Elliott and Hurley

1. On economic convergence:
Can foreign aid assist in ameliorating the diverging effects of the Industrial Revolution? The theory of economic convergence allows for the assessment of the potentiality of the hypothetically ideal foreign aid in order to judge if efforts to counteract the Great Divergence are inevitably fruitless. There are 3 dominant explanations generally offered to account for the absence of convergence among countries: that productive technology somehow allows the rich to have greater returns to scale, that convergence is a fact of life only among countries with an adequate human capital base for implementing modern technology and that currently poor countries simply have low long-term potential for high economic growth. These pessimistic theories suggest that the countries left behind by the Great Divergence two hundred years ago will be unable to achieve the rapid growth necessary to close the gap with the industrialized nations.

As we’ve read, Barro introduced the notion of “conditional convergence,” meaning that a country tends to grow more rapidly the greater the gap between its initial per capita income level and its long-run per capita income level. Thus, a poor country will grow faster than a rich country, but only if the poor country’s human capital exceeds the amount that generally companies the low level of per capita income. However, on a more optimistic note, Jeffrey Sachs and Andrew Warner find based on regression analysis that convergence depends on policy choice rather than on initial levels of capital. Therefore, it can be inferred that convergent growth can be achieved by all countries that have the necessary political and economic policies, including basic adherence to political and civil rights, an open economy and civil peace (Jeffrey and Warner. “Economic Convergence and Economic Policies,” April 1995. http://www.nber.org/papers/w5039).

2. On Amartya Sen & Barro:
Additionally, the cross-country evidence examined in Barro’s study confirms the strong empirical regularity of the Lipset hypothesis. Democracy is found to be predicted by various measures of the standard of living, including real per capita GDP, life expectancy and male and female primary school attainment, thus supporting the comprehensive nature of Sen’s capability approach to development. Barro’s study suggests that countries at low levels of economic development generally do not sustain democracy, exemplified by the short lived political freedoms that were installed in the newly independent African states in the early 1960s, but non-democratic places that experience significant economic development tend to become more democratic, such as Chile, Taiwan, Spain and Portugal. Therefore, improvements in real per capita GDP, life expectancy and male and female primary school attainment increase the probability that political institutions will become more democratic over time, indicating that political freedom is in a sense a luxury good.

While it is important to keep in mind that the correlations that Barro observed are not clear indicators of causation, the results of this study serve to caution proponents of the capability approach, who advocate focusing on augmenting substantive freedoms, that these freedoms may not be able to be augmented until an adequately high income level is attained. Not only does this study indicate that more democracy is not the key to economic growth, which is significant given that economic growth is essential in attaining growth-mediated process of development, it also suggests that political freedoms tend to erode over time if they get out of line with a country’s standard of living. It follows, then, that policymakers with the goal of development should focus on either economic growth or the augmentation of substantive freedoms based on the current status of the country for which they are making policies. If economic freedom can be established in a relatively poor country, then economic growth would be encouraged and the county would tend to become more democratic on its own in the long run. Barro concludes his study by directly supporting the economic approach to development, with development being defined as the process of widening people’s choices and enhancing well-being, by stating that “the propagation of Western-style economic systems would also be the effective way to expand democracy around the world” (p24 of “Determinants of Economic Growth: A Cross-Country Empirical Study,” 1996. http://www.nber.org/papers/w5698). It seems likely (to me, at least) that Sen would hold Barro’s conclusion to be supportive of the capability approach.