Thursday, June 16, 2011

Puzzled: why do poor improve and rich decline?

Here are World Bank figures for Gross National Income per capita from 2006-2009, looking at the richest countries in the world. I have circled those countries which have experienced declines in GNI at any point over the four-year period:
And here is the same thing for the very poorest countries:

65% of the richer countries experienced declines while only 10% of the poorer countries experienced decline.

I struggle to understand these figures. Does this mean that the poorest countries have economic advantages over the rich? Did their poverty mean that they avoided the speculative bubbles that troubled the rich states? Or is their growth really so humble that it makes little difference to their poverty? Any thoughts? I'd love to know why the poorest countries in the world seem to have experienced economic growth while the rich have run aground.

8 comments:

  1. Not being an expert I'd imagine you're right. The poorest economies are so humble they couldn't get worse. Also (again not being an expert) maybe their economies are not so sophisticated as to be punished by the 'speculative bubbles'. Even the so-called Democratic Republic of Congo has seen growth. It's base couldn't have been too high considering its recent history.

    Another thing would be to look at what these countries produce. Sierra Leone produces a lot of diamonds. Precious stones and metals (especially gold apparently) are always safe bets during recession. Oil as always would be valuable I'd imagine.

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  2. Good point about the production of "safe bets". If emphasis has shifted to mining during troubled economic times then perhaps economically underdeveloped countries might see relative growth I suppose.

    Not sure though. It's hard to get my head around it. The richest countries are experiencing gains and losses of thousands of dollars per capita every year. The poorest are registering gains (mostly) of tens of dollars. But in percentage terms these appear to be massive increases in wealth. Ethiopia's GNI increased by 74% over the four years shown here!

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  3. Well as you said before if your income is one dollar and it increases 100% you're still only earning $2!

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  4. A comparison would be a start-up to a well established conglomerate. The start-up would be zooming rapidly while the conglomerate would have hit an earnings ceiling, because there is a huge need for improvement.Also the poorest countries are very young while the richest ones are ageing (By 2030, 65% of Japan will above 40 compared to only 15% in Niger)

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  5. Wow good point about the ages.

    I've sometimes heard that poorer countries can grow faster because they just have to copy technology from the rich. However the rich countries have to spend huge time and resources on creating new technology.

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  6. That's also a very good point,people who had a standard of living comparable to say Ireland a 100 years ago can afford a cell-phone, making their lives lot easier. In many developing countries, millions of people bought a cellphone instead of landlines as their 1st communication devices, where as developing countries had decades of landline use before they moved to cellphone. As an example, my dad first bought a landline in 1988 (after a 5 year waiting period) and moved on to a cellphone in 8 years.

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  7. China is investing heavily in many African countries, most notably Congo.
    In 2007 Congo made a deal with China, guarantueeing China to some 10 million tonnes(!) of copper and 600 thousand tonnes of cobalt in exchange for a 9 billion dollar of Chinese investment in infrastructure, schools, hospitals etc. In other countries China has bought millions of acres of land to secure their food-production. That is all inflowing capital.

    A second reason is that is the last 2 decades the IMF remitted billions of dollars of debt of many African countries that could barely produce enough to pay the rent of their loans.

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  8. Excellent points Matthijs, thanks :)

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