Last fall I wrote two posts, Open borders and the economic frontier, part 1, and Open borders and the economic frontier, part 2, which were meant to be the first two parts of a three-part series, which sought to address the large macroeconomic question of whether open borders would cause the global economic frontier to move forward faster or slower. BK had made a loose empirical argument in the comments that the more productive ethnic groups seem to be most productive when they are in the majority, less so when they live as minorities among other ethnicities. In part 1, I gave the following reasons why I was skeptical of BK’s empirical analysis: (a) the weakness of the theoretical links between race, cognition, and GDP; (b) the fact that the poor/racially disadvantaged countries are concentrated in the tropics; (c) the pattern that the racial minorities BK’s argument focused on tend to have arrived under imperialist auspices as colonizers or settlers and are therefore particularly alienated from the population; and (d) the prevailing view in our culture that “racism” is scientifically erroneous. In part 2, I explained how, in my own theoretical work, growth is modeled as “exploration of the goods space” through an expansion of the “endogenous division of labor” as capital or population expands, and applied it to the data BK had highlighted. Using the EDOL model, I derived a new theory of relative growth and decline in the 20th century, namely, that the automotive revolution altered economic geography, reducing the economic distance between all manner of points connected by land, while increasing the distance between points separated by the sea: thus Britain and its empire suffered, while the United States and contintental Europe were big gainers, and the Soviet Union also benefited.
But let me step back a bit. Economic growth is very important because, in the long run, small changes in growth rates can alter the human condition enormously. If we can raise the long-run growth rate of per capita income merely from, say, 2% to 3%, that will make our grandkids 70 years from now twice as rich as they would have been if the slower growth trajectory had been sustained. In 700 years, this small change would make our descendants over a thousand times richer than they would have been. Lately, this important topic has become the subject of a large literature, mainly in economics though it spills over to other fields as well. I got a Masters in International Development and a PhD in economics and I’ve been exposed to a lot of this literature, yet I nevertheless feel inadequate to the task of summarizing it. Still, here’s a very rough typology of theories. Continue reading “Open borders and the economic frontier, part 3” »