Why are we poor?

The consequences for human welfare

involved in questions like these are simply
staggering: Once
one starts to think about them, it is hard to
think about anything else.”
—Robert E. Lucas, Jr.
 RGDP per capita 2020
3000

2250

1500

750

0
Ethiopia Djibou Kenya Sudan
t
 RGDP per capita 2020
3000

2250

1500

750

0
Ethiopia HIPC Djibou Kenya Sudan
t
 RGDP per capita 2020
3000

2250

1500

750

0
Ethiopia HIPC SSA Djibou Kenya Sudan
t
 RGDP per capita 2020
11000

8250

5500

2750

0
Ethiopia HIPC SSA World Djibou Kenya Sudan
t
 RGDP per capita 2020
60000

45000

30000

15000

0
Ethiopia HIPC N.America SSA World Djibou Kenya Sudan
t
People using at least basic drinking water services (% of popula on)
Table 1

Country Name 2020

North America 99.8
World 90.3
Djibou 76.0
Sub-Saharan Africa 63.4
Sudan 62.7
Kenya 61.5
HIPC 60.0
Low income 57.3
Ethiopia 48.7
South Sudan 41.0
t
ti
Access to clean fuels and technologies for cooking (% of popula on)
Table 1

Country Name 2020

North America 100
World 70.2
Sudan 60.5
Kenya 21.7
Sub-Saharan Africa 18.4
Low income 15.7
HIPC 14.4
Eritrea 11.1
Djibou 9.25
Ethiopia 6.8
South Sudan 0
t
ti
People using at least basic sanita on services (% of popula on)
Table 1

Country Name 2020

North America 99.6
World 78.4
Djibou 66.7
Sudan 36.9
Kenya 35.7
Sub-Saharan Africa 33.6
Low income 30.9
HIPC 29.3
South Sudan 15.8
Ethiopia 9.0
t
ti
ti
The lay of the land
The world at night
South & North Korea at night
East & West Germany
Ethiopia vs Eritrea (Per capita Income)
Explanations
• Geography hypothesis
• Cultural hypothesis
• Ignorance theory
• Institutions

• Reading assignment (Acemoglu & Robinson, 2012, Why

Nations Fail, Chapter Two)
Geography hypothesis
• Physical environment of a country determines its economic development
• Countries with favorable climate, fertile oil, natural resource, or access to trade routes
• Poor countries are between the tropics of Cancer and Capricorn & rich nations, in
contrast, tend to be in temperate latitudes.

• Montesquieu: people in tropical climates tended to be lazy and to lack inquisitiveness.

• Influential version of the geography hypothesis Jared Diamond
• intercontinental inequality rested in different historical endowments of plant and animal
species, which subsequently influenced agricultural productivity…the Fertile Crescent

• Animalities- Hot weather but not poor: Singapore, Malaysia, and Botswana, East &
West Germany, South & North Korea
Cultural hypothesis
• The values, beliefs and attitudes of a society shape its economic performance
• Some cultures may promote hard work, innovation, trust, or tolerance, while others may encourage
laziness, conservatism, corruption, or violence

• Religion: Max Weber, who argued that the Protestant Reformation and the Protestant ethic it
spurred played a key role in facilitating the rise of modern industrial society in Western Europe.

• Anomalies- Nogales, South and North Korea, France, Italy, a predominantly Catholic country,
China, East Asians, Japan

• Perhaps is not English versus non-English that matters

• Explain -USA, Canada, Australia vs Nigeria, Sierra Leone
• Ok perhaps European versus non-European.
• Anomalies-greater proportion of the population of Argentina and Uruguay, compared with the
population of Canada and the United States , explain Japan and Singapore, China
Ignorance theory
• Suggests that the elites of a country are unaware of the best
policies and practices that can foster economic development.

• “Market failure” provide the basis for a theory of world inequality,

since the more that market failures go unaddressed, the poorer a
country is likely to be.

• The ignorance hypothesis it comes readily with a suggestion

about how to “solve” the problem of poverty: if ignorance got us
here, enlightened and informed rulers and policymakers can get
us out