Why Many Developing Countries Just Aren't

The Anderson School at UCLA, Finance Working Paper No. 19-01

55 Pages Posted: 4 Dec 2001

See all articles by John Talbott

John Talbott

Global Development Group

Richard Roll

California Institute of Technology

Date Written: November 13, 2001


Annual income/capita varies across countries of the world by a factor of almost 100. Past literature has often associated income with culture, geography, history, and religion, but these cannot be easily changed. We seek to uncover mutable determinants of income. There is good news. More than 80% of the cross-country variation in per capita income can be explained by mutable determinants. Among these are property rights, black market activity, regulation, civil liberties, press freedom, government spending, trade barriers, inflation, and political rights. Data for five recent years 1995-99 were used in this determination. To check that these factors were causes and not the effects of high income, the trajectories of income before and after democratic and anti-democratic events were traced using data over the past half century. After a democratic event, income rises on average dramatically while the reverse is true after an anti-democratic event. We conclude that countries can develop faster by enforcing strong property rights, fostering an independent judiciary, attacking corruption, dismantling burdensome regulation, allowing press freedom, and protecting political rights and civil liberties. These features define a healthy environment for economic activity. Trade per se is not causative, but rather follows after the establishment of these conditions.

Keywords: country wealth, economic development, political conditions for growth

JEL Classification: I3, O1, O4

Suggested Citation

Talbott, John and Roll, Richard W., Why Many Developing Countries Just Aren't (November 13, 2001). The Anderson School at UCLA, Finance Working Paper No. 19-01, Available at SSRN: https://ssrn.com/abstract=292140 or http://dx.doi.org/10.2139/ssrn.292140

John Talbott

Global Development Group ( email )

2260 El Cajon Blvd, #201
San Diego, CA 92104
United States
619-772-3849 (Phone)
619-295-5036 (Fax)

Richard W. Roll (Contact Author)

California Institute of Technology ( email )

1200 East California Blvd
Mail Code: 228-77
Pasadena, CA 91125
United States
626-395-3890 (Phone)
310-836-3532 (Fax)