An incredibly over-simplified recent economic history of India, with implications for Malawi

Back when I was still staying at the Circumcision House in Lilongwe, Justin Schon (the circumcision project manager) and I had a couple of lengthy discussions about Malawi’s economic prospects. As I am wont to do, I found myself defending the generalized free market approach to development, and leaned on India’s 1991 reforms for evidence. Justin raised an interesting question: how is it possible for India to have grown so fast in the past two decades? And by implication, can other countries hope to achieve the same thing?

The subtext of his question is that India doesn’t have a nice, clear-cut development story, like, say, China’s. They just have outsourcing. How can that have led to such high economic growth? Our mutual adviser & boss, Rebecca Thornton, pointed us toward an article that I think goes a long way toward explaining what has been happening in India. In “Boom Towns and Ghost Countries”, Lant Pritchett lays out the criteria for a ghost town: in short, a region where productivity goes up due to a geography-specific shock (finding gold) tends to attract a larger population. If that shock fades (the gold runs out) , the people leave. Hence the ghost towns all over the US. But what if people can’t leave? Zombies. Places that should have emptied out, with people heading toward greener pastures, but instead find their population locked in place. Wages fall and don’t recover.

Looking at India through this lens, you can think about their 1991 economic reforms as basically lowering the barriers to labor mobility out of their country, but on the sly. By making it easier for foreign firms to invest (and helped along by a large number of highly-educated English speakers) they were able to let their population take advantage of foreign wages without leaving home. Then, geopolitics compounded the process. India is big, with high internal mobility. Tens of millions of people took advantage of this to flock to the high-growth cities, leaving ghost villages in their wake (in the Pritchett-ian sense of much lower population growth, if not necessarily decline).

What does this mean for a place like Malawi? Well, on top of all the other constraints people face here, they’re ultimately limited by the size and extent of their country. In the US, the chances for lucky geography are much higher – they can be anyplace within our borders. Anybody who’s read The Grapes of Wrath has a sense of how hard life was for Oklahomans fleeing the Dust Bowl. Imagine a world where they had nowhere to go.

That’s a worst-case scenario, and Malawi is currently on a decent trajectory economically, but the long-run prospects for Malawians really depend on the availability of more opportunities in places its people can reach. Open borders with its neighbors would be a potentially huge boon, especially if that meant opening a path to South African labor markets.

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About Jason Kerwin

http://nonparibus.wordpress.com/author
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