Institutions for Economic Development
Chapter 6: Developing Countries: Four Cases
More than 50 years ago, the Swedish economist Gunnar Myrdal (1957) enunciated his famous theory of underdevelopment, which he based on the vicious circle – cumulative causation among a series of factors that reinforced each other through feedback loops, such as low employability, low revenues, low education levels, low productivity, and bad health. With low incomes people cannot buy good health services or good education. Low education determines low productivity, which in turn explains low revenues and low employability. Bad health undermines productivity. Myrdal sought to integrate political, social, and cultural factors in his analysis of the poverty trap. Thus he mentioned that rapid demographic growth in a society would hinder economic development. Advocating a restriction in the fertility rates of developing countries, he foresaw the spectacular economic growth of China under the policy of one child per family and the catastrophic situation of most Muslim countries with very high fertility rates. Myrdal also emphasized that governments should challenge traditional institutions that tend to perpetuate social and economic inequalities and also block growth; these include the caste system in India and religions that promote uncontrolled population growth. Also, he argued that markets by themselves would not eliminate obstacles to development: governments must plan new industries and remove rigidities, while opening new possibilities for private enterprises. Again, he anticipated the post-1945 planning activities of the governments of China, Japan, South Korea, and Taiwan that underlie the ‘Asian miracle’ (Deyo, 1987; Amsden, 1989; Okimoto, 1989; Wade, 1990; Johnson, 1982; Kim, 1997b; Kim and...
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