Re: Trade and Growth

["Alan G. Isaac" <aisaac@xxxxxxxxxxxx>]

 At 01:45 AM 05/04/2001 -0400, P. Nagarajan wrote:
> With reference to my statement that several countries have
> registered economic growth with sharply deteriorating human welfare
> for a vast majority of the population , Alan G. Isaac wrote ( May 1):
>>       I would like an example where this has been true for more than
>>       a  decade or two .
> For example , some of the following countries in sub-Saharan Africa
> have registered modest economic growth  in the past decades with an
> increasing inequity, unemployment , poverty , hunger and diseases .
> The deteriorating human welfare in these countries has been well
> documented in various UN reports.
>                   ReaL GDP Growth  Rate ( average )
>                  ( 1982- 91 )                          1992-99
> Kenya       4.0                                           2.1
> Nigeria      3.5                                            2.4
> Uganda     3.3                                             6.6
> Ghana       2.9                                             4.4



I find this a such a weak response that it makes my point: sustained
growth yields benefits for the vast majority of the population.  This
is so obvious as a matter of economic history, I simply cannot
understand why a few people still waste their time trying to debate
it.  Tilting at windmills remains ever popular, I guess.  When the
only exceptions you can offer are a four sub-Saharan countries (3 with
a population about that of California) that are recovering from the
devastations of civil war and raging epidemic, these would be the
exceptions that prove the rule---*if* they were truly exceptions.

But how much of an exception are we really talking about? Well from
1980-1995 Ghana's real GDP grew about 2.96%/yr, doing a bit better in
the '90s.  (IFS data; sorry I don't have more recent data at hand.)
Over the same period its population grew about 3.2%/yr. So real GDP
per capita was *falling*.  Do I really need to state on *this* list
that real GDP is is not the relevant measure of growth? Equivalently,
must I remind someone on *this* list that no one has ever suggested
that doubling the population while only lowering productivity by a
third is not a way to increase the material welfare of the average
person?? If we want to discuss this, let's be serious about the data.
How about a more promising case: Kenya.  The '80s saw 5.7%/yr growth
in real GDP---a pretty good time for Kenya---but don't forget
population growth was around 4%.  In the 1990s GDP growth fell
dramatically, but population growth continued apace, so again we have
*declining* real GDP per capita. (Will Nagarajan argue the 1990s were
*better* for Kenya than the '80s?!)

Going back to the original discussion,
  http://csf.colorado.edu/mail/pkt/2001/msg01573.html
Nagarajan was claiming that even if increased trade means increased
growth, we shd not presume a welfare improvement. But the examples he
then offers conflict badly with the intent to support that argument,
since the relevant counterfactual for these countries is the same
devastating negative shocks (disease, corrupt leadership, civil war)
coupled with less international trade. If Nagarajan's intent is to
claim that that would have been a welfare improvement for the ``vast
majority'' of the people in these countries, I am astonished and await
a supporting argument. However, I suspect he simply lost the thread of
his argument.

Nevertheless, I will qualify my claim.I imagine that if you look at
the Soviet Union under Stalin you can find large increases in measured
real production per capita with large declines in standard welfare
measures.(I don't have any data on hand, so I'll let someone else
pursue this.)Real GDP per capita is always a crude welfare indicator
at best---e.g., due to externalities, public goods, and monopoly
power---but it deteriorates rapidly as the links between economic
decisions and individual preferences becomes increasingly attenuated.

Alan Isaac