Haiti: Institutions and Development

Why is Haiti so poor? Tyler Cowan lists some possible reasons and there are other many other essays floating around in the blogosphere. They all have a common component: governance issues. Haiti is a former french colony, was occupied by the US, has had malevolent dictators and is rife with corruption. In economics, such issues fall under the general rubric of 'institutions.'

Institutions refers to a nations laws and legal system that protect individual and private property rights that promote private investment investment, and government and bureaucracies that provide infrastructure, education, regulation, etc. All of this is thought to be critical to development and most poorly performing economies can be described as having weak institutions.

Though it makes a lot of intuitive sense, it is a very hard thing to isolate in an empirical study. The problem, of course is that institutions and growth are very highly correlated, but is it good economic performance that accounts for the strong institutions or is it the strong institutions that created the preconditions for the strong growth? It is yet another case of correlation vs. causation.

In order to try and identify the causal link between institutions and development, you need to find a variable that helps explain the institutional quality of a country but is not correlated with the unexplained variation in growth. This is hard to do.

Three economists, Daron Acemoglu, Simon Johnson and James Robinson, wrote a seminal paper a few years back that did exactly this. They used settler mortality data to identify countries that were more and less hospitable to european settlement during the beginning of the colonial era. The idea is that in countries where settler mortality was relatively low, colonizers were more likely to set up more long term or more permanent institutions (England in the US, Australia and India for example), in countries with high settler mortality rates the incentives were to set up a minimal institutional architecture, extract resources, and get out (Belgium in the Congo and more generally tropical countries had more diseases). Of course the story doesn't work if the mortality rates are the same in the local populations, but in general those populations had become resistant to the local diseases and it was mainly the Europeans that were susceptible to these illnesses.

They use this disease climate variable as a determinant of the development of good institutions (while controlling for many other observable, like for instance, the nationality of the colonizer) and argue fairly convincingly that this settler mortality is unrelated to the unobserved unexplained variation in subsequent growth rates. Their findings are robust: good institutions are important for good development.

So where does Haiti stand in this study? Its settler mortality was in the middle and fairly average for the Caribbean, but it was colonized by France and there is some evidence that this is worse than being colonized by England or Spain as were other more successful Caribbean economies. But the kleptocratic Duvalier reign in Haiti was probably the most damaging aspect of Haiti's 20th Century growth.

Haiti: Mercy Corps

From Mercy Corps:

As you know, Haiti—already one of the poorest countries in the Western hemisphere—was devastated by an earthquake yesterday. Portland-based Mercy Corps is sending an emergency relief team to Port-au-Prince, and we’d like your help in spreading the word.

Mercy Corps has extensive experience responding to earthquakes: Indonesia in 2009, China and Pakistan in 2008, and Peru in 2007. Please help us respond as quickly and effectively to this disaster as we did to those.

For more information about Mercy Corps’ efforts in Haiti, you can check out http://www.mercycorps.org/haiti?source=13500, http://www.mercycorps.org/?source=13500, andhttp://www.mercycorps.org/rogerburks/blog/17219. Our efforts for Haiti have also been mentioned by The Huffington Post (http://www.huffingtonpost.com/2010/01/13/whos-heading-to-haiti-res_n_421231.html), The New York Times (http://thelede.blogs.nytimes.com/2010/01/13/haiti-disaster-relief-how-to-contribute/), The U.S. State Department (http://blogs.state.gov/index.php/site/entry/disaster_haiti), and The Christian Science Monitor (http://www.csmonitor.com/World/Americas/2010/0112/7.0-earthquake-rocks-Haiti).

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Haiti's Economic Performance

Catherine Rampell on the New York Times' Blog:

Even before Tuesday’s devastating earthquake, Haiti had a distressed economy.

It is one of the poorest countries in the Western hemisphere, with around 80 percent of the population living under the poverty line and 54 percent living in abject poverty, according to the CIA World Factbook. More than two-thirds of the labor force are believed to not have formal jobs, and just 62.1 percent of adults over age 15 are literate, according to the United Nations Human Development Report.

Haiti also has among the world’s lowest levels of gross domestic product per capita.

Despite the destruction wreaked by multiple tropical storms in 2008, in many ways Haiti’s economy and infrastructure-building seemed to be turning a corner in recent years, aided by international support and debt relief programs.

In fact, Haiti was one of only two Caribbean countries expected to grow in 2009. There were hopes of a tourism revival, reinforced by the announcement that a new Comfort Inn would open there this May. In a sign of its growing structural sophistication, Haiti even recently announced that it would begin collecting better national statistics, with the help of theInternational Monetary Fund, so that it could better assess and calibrate its economic policies.

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For more information on Haiti’s economic development and challenges, gohere, here, here, here and here.

Update: Here are some theories from Tyler Cowen about why Haiti has remained so poor.

Disasters and Development

I was going to post on today's Public Policy Analysis class, but little else seems to matter relative to the disaster in Haiti. To be sure a 7.0 magnitude earthquake would be a disaster in any built environment and yet it is so much worse in a poor developing country like Haiti due to poor construction, poor infrastructure, and poor services including emergency response.

The reality of the world is that while even developing countries have come a long way, the inequality among nations continues to grow. Here is a chart of some selected countries which illustrates this point.

Haiti's GDP per capita is about $1700, compared to the US's which is about $43,000. Over time this difference has grown and continues to do so. Here is a graph that illustrates the growth in inequality in the world.

Most policy that has any real affect (outside of trade policy) is national in nature, so transfers to developing countries are essentially voluntary charitable donations. And while much effort has been spent to try and improve developing country economies so that they too can enjoy rapid sustained growth, the reality has been dismal - especially in Africa.

Events like the earthquake in Haiti serve as stark reminders how much of the world is being left behind and how many people are living lives characterized by poverty and risk.

Update: Nicholas Kristof has a nice blog post on the same topic.