Why are some countries rich and others poor?

Was it luck to be born where I was born?

It is an uncomfortable question to sit with, because the answer is mostly yes. A child born this year in Oslo and a child born the same day in Bujumbura will differ in lifetime income by a factor that no amount of effort, talent, or virtue on either child’s part is likely to close. The gap was decided before either could walk, by the single fact of which side of a border the delivery room stood on. Nothing else a person encounters, not their schooling, their industry, their choices, moves their expected income as much as the country named on their birth certificate.

This is the largest question in the volume, and the previous chapter built the instrument for asking it. Output per person, measured on the gauge that the last chapter calibrated, differs across the world not by a little but by around a hundredfold. The task of this chapter is to say how large that gap really is, and then to weigh the explanations people reach for, which come down to three: geography, culture, and institutions.

The size of the thing to be explained

Start with the gap itself, because its scale disciplines every theory that has to account for it. Take output per person and adjust it for what money actually buys locally, the purchasing-power basis that makes a wage in Lagos comparable to a wage in Oslo. On that basis the richest sizable economies produce more than a hundred times as much per person as the poorest.

A hundredfold is the figure on the gentle measure. Convert the same incomes at market exchange rates, the rate a traveller gets at the airport, and the ratio widens several times over, because a haircut or a bus ride costs far less in a poor country and purchasing-power adjustment credits the poor country for that. Either way the gap is not a matter of one country being comfortable and another a little behind. It is the difference between a long, secure, schooled life and a short, precarious one, and it falls almost entirely along national lines.

That last point can be measured directly, and it is the sharpest way to see how much birthplace matters. Compare workers who are the same in every way economists can record, same country of birth, same years of schooling, same age and sex, and ask what one of them earns at home versus what an identical worker earns after moving to the United States. The wages are not close. For a worker from Nigeria the ratio is about fifteen to one; from Haiti roughly ten to one; from India about six to one, all adjusted for local prices. These are different workers matched on everything a survey records, not the same worker before and after a move, so part of the gap may reflect traits no survey captures; even allowing for that, most of it travels with the border rather than the worker. Economists call this the place premium, and it is among the cleanest evidence that location, more than recorded worker quality, sets most of a wage.

The case for geography

The oldest explanation looks at a world map and sees the answer written on it. Rich countries cluster in the temperate zones; poor countries cluster in the tropics. That pattern is real and it is large. In the work of Jeffrey Sachs and his collaborators (Gallup, Sachs and Mellinger, 1999), the tropical countries averaged about $3,300 of income per person in the mid-1990s against roughly $9,000 for countries outside the tropics, close to a threefold difference, and of the thirty richest economies only two lay in the tropics, both of them small city-states. Landlocked countries outside Europe were poorer again, averaging under $1,800 against more than $5,500 for their coastal neighbours.

Geography offers concrete mechanisms, not just a correlation. Tropical soils and rainfall make settled grain agriculture harder and yields lower. Landlocked countries pay more to move goods to a port and to world markets. Above all there is disease. Gallup and Sachs found that countries with intensive malaria had incomes in 1995 only about a third those of malaria-free countries, and that where malaria was intense economies grew more than a percentage point per year more slowly. Crucially, they argued the causation runs from ecology to poverty rather than the reverse, because whether malaria takes hold is set by climate and the mosquito, not by how poor a country happens to be. In its deep-historical form, associated with Jared Diamond, the same logic runs back ten thousand years: the regions that happened to have the most domesticable plants and animals got farming, cities, writing, and states first, and that head start compounded across millennia. On this reading the wealth of nations was substantially dealt by the land itself.

The case for culture

A second explanation locates the difference in people rather than places: in the beliefs, habits, and values a society passes down. The idea is an old one. Max Weber argued in 1905 that a specifically Protestant ethic, treating diligent work and thrift as signs of grace, gave early capitalism its motive force. The historian David Landes, surveying five centuries of divergence in The Wealth and Poverty of Nations (1998), put the position at its bluntest, writing that “if we learn anything from the history of economic development, it is that culture makes all the difference.” Thrift, education, trust in strangers, an orientation to the future: where these are strong, the argument goes, prosperity follows, and where they are weak it does not.

The modern version is more careful, and measures rather than asserts. Economists including Guiso, Sapienza and Zingales (2006) define culture narrowly, as the beliefs and values a group transmits little changed across generations, and test specific channels, above all trust. Societies where people expect strangers to deal honestly can support the impersonal exchange, credit, and investment that a modern economy runs on; societies where trust stops at the family cannot, or can only at higher cost. Put that way, culture is not a slur on the poor but a variable with mechanisms that can be measured. The difficulty, taken up below, is telling culture apart from the institutions it grows alongside.

The case for institutions

The third explanation holds that what divides rich from poor is neither the land nor the people but the rules: whether property is secure, whether contracts are enforced, whether power is checked or plunders at will. Economies where ordinary people can expect to keep what they build invest and innovate; economies where a ruler or an elite can seize the returns do not, because there is no point. The cleanest way to see the claim is to find two places where land, climate, and people are held constant and only the rules differ. One such place is a single city split by a fence.

Nogales sits astride the United States–Mexico border. The Gadsden Purchase of 1853 extended the border through the Nogales valley, and the two towns grew up on either side of it, so the people on both sides share ancestors, language, food, and climate. The dust, the heat, and the mosquitoes do not stop at the fence. What stops at the fence is a set of institutions. On the north side an average household earns about three times its southern counterpart, most adults finished school, lives are longer, the streets have working services and policing, and people can vote their officials out. On the south side each of those is weaker. Since geography and culture are essentially the same on both sides, Acemoglu and Robinson read the gap as evidence that institutions, the rules of the game, are what diverged and what mattered.

The border-split logic extends beyond one town. When Korea was divided, one people with one history and one culture was split between opposed sets of institutions, and their incomes parted so far that the two are now barely comparable, a natural experiment this series treats in Frameworks, in the chapter on how the rival systems performed in practice. For the deeper question of where a country’s institutions came from in the first place, one influential answer traces them to the conditions European colonizers met. Where disease made it deadly for settlers to stay, as Acemoglu, Johnson and Robinson argued, colonizers built extractive states designed to pull resources out; where settlers could live, they built societies with broader property rights and checks on power, and those founding institutions tended to persist for centuries. That colonial inheritance is the subject of its own chapter (the chapter on how much of the wealth gap is colonialism’s legacy), and the machinery of why some states can enforce rules at all is treated in the next chapter.

Weighing the three

The three explanations are not sealed off from one another, and the work is in how they interact rather than in crowning one. Geography clearly matters: no theory can wave away a threefold tropical income gap or the drag of malaria and distance from a coast. Culture matters too, most measurably through trust and the impersonal dealing it permits. The reason this chapter, and much of the recent evidence, leans toward institutions is that the cases which hold geography and culture fixed, and vary only the rules, still show the outcomes diverging: Nogales, the two Koreas, the two Germanies. When the land and the people are the same and only the institutions differ, the incomes still split, which is hard to explain if the land or the people were doing the deciding.

That lean comes with a limit, and the limit belongs in the answer itself. The clean experiments are few. History has run the Nogales test only a handful of times, and each divided nation is a single case with its own particulars. The most cited statistical version of the institutions argument, the colonial-settler evidence, rests on historical mortality figures that the economist David Albouy, in a 2012 reassessment, has shown to be shaky, with many countries assigned death rates borrowed from other countries; the original authors dispute his correction, and the exchange is unresolved. And the three explanations bleed together: the disease environment that geography set is exactly what shaped which institutions colonizers built, so geography acts partly through institutions rather than against them, and culture and institutions grow up entangled. The most that can be said with confidence is that institutions carry more of the weight than a look at the map alone would suggest, and that the border cases are the reason to think so. That conclusion is narrower than the confident single-cause stories on every side tend to claim.

What survives all three accounts is the fact the chapter opened with. Whether the decisive lever is climate, culture, or rules, it operates at the level of the country, not the person. The Nigerian who earns fifteen times more by crossing a border did not change; his institutions, his geography, his market did. That is why the place of birth predicts the income so well, and why the question of which country is the one worth answering.

Where the argument goes next

If institutions carry as much of the weight as the border cases suggest, the next questions are what makes an institution work and where the working ones come from. The most basic is capacity: before a state can run good rules or bad ones, it has to be able to enforce any rules at all, to tax, to record, and to make its writ reach the whole territory. Why some states can do this and others cannot, and what happens to a market when no state can, is the machinery the next chapter takes up.