Institutions and Development

Institutions and Development

Advances in New Institutional Analysis series

Mary M. Shirley

A landmark contribution to our understanding of economic development. This significant book argues that fundamental changes in deeply rooted institutions do not happen because of outsiders’ money, advice, pressures, or even physical force; which explains why foreign aid has not, and can not, improve institutions. The impetus for changing institutions must come from within a society, and the author shows how groups of local scholars contribute to institutional change and development when the political opportunity presents itself.

Chapter 2: Why are Poor Countries Poor?

Mary M. Shirley

Subjects: development studies, development studies, economics and finance, development economics, institutional economics


MOST PEOPLE LIVE IN POOR COUNTRIES Most of humanity – over 84 percent – lives in countries that the World Bank defines as underdeveloped (Figure 2.1), and this proportion has changed little over the last 25 years (Figure 2.2). Few underdeveloped economies are growing fast enough to become developed anytime soon; quite the contrary, in one-third of poor countries gross domestic product (GDP) per person in constant dollars has not grown at all since 1980 (Easterly 2002b). DC 16% UDC 84% Source: Author’s calculations based on World Bank, World Development Indicators. Underdeveloped countries (UDC) in 2004 are those defined by the World Bank as upper middle income, lower middle income, and low income (World Bank 2006g, pp. 292–3) that were eligible to borrow from the World Bank in 2005 (World Bank 2005a). Figure 2.1 World’s population living in developed and underdeveloped countries, 2004 8 Why are poor countries poor? 100 90 80 70 60 % 50 40 30 20 10 0 1979 2004 9 Source: Author’s calculations based on World Bank, World Development Indicators. Underdeveloped countries in 1979 are those defined by the World Bank as middle income, low income, and non-market industrial economies (World Bank 1981, pp. 134–5). Underdeveloped countries in 2004, as defined in sources for Figure 2.1. Figure 2.2 World’s population living in underdeveloped countries, 1979 and 2004 Assessing trends in global poverty by looking only at income by country may be unduly depressing. After all, most of the world’s population lives in...

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