What Makes Countries Rich or Poor?

Diamond_1-060712_jpg_470x420_q85Jared Diamond's review of Daron Acemoglu and James A. Robinson's Why Nations Fail: The Origins of Power, Prosperity, and Poverty, in the NYRB:

In their narrow focus on inclusive institutions, however, the authors ignore or dismiss other factors. I mentioned earlier the effects of an area’s being landlocked or of environmental damage, factors that they don’t discuss. Even within the focus on institutions, the concentration specifically on inclusive institutions causes the authors to give inadequate accounts of the ways that natural resources can be a curse. True, the book provides anecdotes of the resource curse (Sierra Leone cursed by diamonds), and of how the curse was successfully avoided (in Botswana). But the book doesn’t explain which resources especially lend themselves to the curse (diamonds yes, iron no) and why. Nor does the book show how some big resource producers like the US and Australia avoid the curse (they are democracies whose economies depend on much else besides resource exports), nor which other resource-dependent countries besides Sierra Leone and Botswana respectively succumbed to or overcame the curse. The chapter on reversal of fortune surprisingly doesn’t mention the authors’ own interesting findings about how the degree of reversal depends on prior wealth and on health threats to Europeans.

Acemoglu and Robinson reply (with a response by Diamond):

[C]ontrary to Diamond’s claim, there is nothing that contradicts tropical medicine and agricultural science in claiming that these are not major factors shaping differences in national prosperity. That these geographic factors cannot by themselves account for prosperity is illustrated by an empirical pattern we discuss—the “reversal of fortune.” Among the countries colonized by Europeans, those that were more prosperous before colonization ended up as relatively less prosperous today. This is prima facie evidence that, at least in the sample that makes up almost half of the countries in the world, geographic factors cannot account—while institutional ones can—for differences in prosperity as these factors haven’t changed, while fortunes have. Academic research also shows that once the effect of institutions is properly controlled for, there is no evidence that geographic factors have a significant impact on prosperity today.