MENA and SSA

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My previous post compared East Asia and Latin America in terms of their political economies using the online graphic tool developed by the Legatum Institute for its Prosperity Index. I am referring to the contrast between developmental states in East Asia and the laissez-faire democratic traditions in Latin America. The emphasis on individuals giving way to collective goals in the former contrasts with the ascendant place individual happiness is accorded in the latter.

A similar comparison can be drawn between two emerging markets: the Middle East and North Africa (MENA) and Sub-Saharan Africa (SSA). Both are endowed with rich natural and mineral resources, but within each region, distinct characteristics and patterns of development seem to emerge that distinguish one from the other. Similar themes as with the East Asian/LatAm comparison emerge in analyzing these two regions.

Firstly, with respect to MENA, there are some similarities in its socio-political and economic make-up with East Asia in that a greater emphasis is placed on economic fundamentals and security. There does not seem to be as much entrepreneurial and innovative activity though (the UAE being the lone exception) which is due to their dependence on minerals for propelling economic growth. Apart from East Asia, the Middle East is the only other region where poverty has been reduced to a great extent.

Secondly, on the part of Sub-Saharan Africa, there are shared traits with Latin America in terms of strong individual freedom and democratic institutions. While generally anaemic in terms of most social indicators, at least two countries, Nigeria and Mali rate well in terms of social capital. Perhaps their use of trust and community involvement is a way of coping with their impoverishment. Like Latin America, the resource curse seems to afflict SSA as evidenced by poor governance, health and education.

Thirdly, as a result of such comparisons, we might be tempted to think that democracy impedes economic development. Here we can find counterfactual examples that debunk such a claim. One is Turkey, a  democracy in MENA which is doing relatively well economically. Another is Zimbabwe, an autocracy in SSA that is at the bottom of most economic league tables.

While many lessons about growth and development can be learnt from East Asia, one has to be cautious about prescribing their model to other regions where the institutional fabric is different. Each region and nation within it has to work out a set of arrangements consistent with its socio-political make-up that would foster economic growth and development. Although the general principles may be the same, there is more than just one way for achieving prosperity and happiness.

East Asia and LatAm

Image taken from Web Resources Depot.

New graphic tools tell the oft-repeated story behind these two regions in a visually compelling format.

Lately I have been playing around with the online graphing tools of the Legatum Institute; in particular, I have been using the results of the 2009 Prosperity Index which the Institute publishes to compare East Asia and Latin America. This multi-dimensional index is an aggregator of sorts in that it combines various measures of prosperity and well-being and allows users to plot different countries on a “spider web” chart.

It is a well-known fact that East Asian and Latin American countries share many socio-cultural traits as well as development strategies. This is borne out by the Institute’s results for these regions. As shown here, LatAm seems to converge into one distinct pattern, while East Asia does the same here. Note that for purposes of demonstration, I have lumped the Philippines (a Latin country transplanted in Asia) and Chile (the reverse case) with their affinitive counterparts.

The patterns show different models of development. LatAm nations score high on Personal Freedom and Democratic Institutions, but relatively low when it comes to Economic Fundamentals, Entrepreneurship and Innovation, and Social Capital. Despite this, the most well-off nations of Argentina, Uruguay and Costa Rica seem to do well in terms of some social indicators Education, Health, and Safety and Security. There is a general lack of good performance in Governance save for the richer nations.

The opposite seems to be happening with East Asia. Here Personal Freedom seems to have been less prioritized in favor of Economic Fundamentals, Entrepreneurship and Innovation, Health, Education, and Safety and Security. As countries in the region get richer, a gradual improvement in Personal Freedom and Democratic Institutions takes place as evidenced by Japan, South Korea, and Hong Kong. Governance tends to improve as well (with China in the embryonic stage of this development path).

Does this imply that democratic institutions are not good for development or that authoritarian governments promote growth? Not necessarily as this Economics By Invitation feature by The Economist showed. While as Alberto Alesina states, there may be no evidence that democracies promote faster growth, and that as Lant Pritchett suggests authoritarian regimes tend to have a spotty record, as Daron Acemoglu who co-wrote a book on this (shown below) as well as Ricardo Hausmann, Arvind Subramaniam, and Yang Yao suggest, getting the right incentives, institutions and governance arrangements do matter.