Be Careful When You Want to Use Statistics from the UN Next Time

Read this piece from the always insightful development guru Bill Easterly.

Bottom line: International agencies make up numbers in a bid to have bigger budgets. Sad.

Tyler Cowen vs Justin Lin

Lin wrote in this piece that small banks are good for developing economies, Cowen is reluctant to endorse Lin's view.

The gist of Cowen's argument is this:

But what if those institutions (Gary's note: big banks) start to arise naturally, from market forces, as indeed they will at some point? Should they be discouraged or shut down or somehow taxed at disproportionate rates?

Why Africa Does Not Develop?

My research shows that this is indeed the case. The countries from which the most slaves were taken (taking into account differences in country size) are today the poorest in Africa. This can be seen in figure 1, which shows the relationship between the number of slaves taken between 1400 and 1900 and average real per capita GDP measured in 2000. As the figure clearly shows, the relationship is extremely strong. As well, the relationship remains robust when many other key determinants of economic development are taken into account...

According to my calculations, if the slave trades had not occurred, then 72% of the average income gap between Africa and the rest of the world would not exist today, and 99% of the income gap between Africa and the rest of the underdeveloped world would not exist. In terms of economic development, Africa would not look any different from the other developing countries in the world.

More here. BTW, professor Nathan Nunn, the author of the piece summarized above is now at Harvard, not Canada's UBC.

Bottom Billion

The Bottom Billion has been picked by the Economist as one of the books of the year 2007.

The Economist's review of the book wrote:

Its author, Paul Collier, an Oxford economics professor, has spent 30-odd years puzzling mainly over sub-Saharan Africa and trying to work out why so many of its 48 countries have become basket cases. Crammed with statistical nuggets and common sense, his book should be compulsory reading for anyone embroiled in the hitherto thankless business of trying to pull people out of the pit of poverty where the “bottom billion” of the world's population of 6.6 billion seem irredeemably stuck.

Here is another positive review from Martin Wolf at FT.

Just when you plan to rush out and buy the book, first read what another economic guru on Africa Bill Easterly has to say about the book:

With such a statistical muddle, to remake other societies on the basis of what numbers flicker across Oxford computer screens is at best hubris, and at worst irresponsibility. If Collier’s statistical analysis does not hold up under scrutiny, unfortunately,then his recommendations are not a reliable guide for deploying foreignaid, technical assistance, or armies.

Economists should not be allowed toplay games with statistics, much less with guns.

More here.