Wednesday, September 10, 2014

Dialogus Interlude -- Why not a Kiev Consensus? Introducing the 'Punches Above its Weight' (PAW) Index.

Some of us argue that a country’s capacity to develop GDP per capita is significantly capped by transnational factors that operate outside of the reach of domestic governance institutions.  Like I wrote earlier, I believe that China’s dramatic economic growth can be more-or-less wholly explained by the common-sense removal of a set of highly dysfunctional economic and social policies, combined with China’s close economic and cultural proximity to the world’s most dramatically developing regional geography, that of East and Southeast Asia.  In other words, I would argue China’s domestic economic growth has been driven primarily by the dynamic growth of the larger regional economy of east and southeast Asia of which China is a part, and not by anything special that China has been doing domestically.   Even after some 20 years of searching, no-one has been able to attribute Chinese dramatic economic growth to the presence of any particular domestic institution.

This being the case, it seems misfounded to hold China up as a model simply because of its level or growth of GDP / cpaita.   This is likely to simply be a function of China's fortuitous location in transnational economic space. 

On the other hand, however, it does seem more likely that institutions, including legal institutions, might be able to impact other aspects of development – such as literacy, nutrition, economic stability and security, health, etc.  These non-economic aspect of development are relatively well captured by UNDP’s Human Development Index (HDI).   But as Optimo has noted, a country’s HDI is also significantly affected by its GDP level.  This suggest that in looking for an institutional ‘model’ for development, we need to look at a country’s HDI performance independent of GDI, since that is where that country’s domestic institutions – including legal institutions – are likely to be having impact. 

Along these lines, in looking for possible developmental models, I proposed we might start by looking at what I am calling the PAW ('Punches Above its Weight') Index.  The PAW index measures the difference between a country’s GDP per capita ranking and its HDI ranking – i.e., how much a country’s level of development punches above its GDP weight.  In this way, it looks to measure how well a country has been able to transcend the natural developmental boundaries set by its level of GDP.  The more a country has been able to transcend those boundaries, the more likely it is that we might find institutional models that deserve study.  (Consistent with this, PAW ranking do not seem to show the same kind of core-periphery geographical patterning that GDP and HDI rankings do.)

Seen in this light, China – aka the Beijing Consensus – does not appear to offer a promising site for a developmental 'model'.  China ranks 93rd in GDP per capita and 91st in HDI, giving it a PAW index of +2.  (Country rankings come from Wikipedia -- so sue me.)  Of the other BRICS countries, Russia has a PAW index of +1, but at a much higher overall level of development (58/57).  I had originally hoped that Brazil would give us a more promising model, but unfortunately, its PAW index is 0 (79/79), so there goes my earlier hope for a São Paulo Consensus.   India has a PAW index of -2 (133/135), and South Africa has a PAW index of -34 (84/118).

So, where should we look?  The best PAW index in the world belongs to Jordon of all places, which has a whopping +43 (120/77).  Perhaps just as surprising, Georgia is second with +40 (119/79).  Sri Lanka (112/73) is third with +39.  But I would still suspect that these are not promising locales for models, as they all feature relatively small economies and small population densities (and in the case of Sri Lanka, an island economy). 

Of the more typical countries,  that which suggests the most promising site for a developmental model would be the Ukraine, which ranks 107th in GDP / capita and 83rd in HDI, giving it a PAW index of +24.  Perhaps even more promisingly, the Ukraine does not feature the geographical attributes associated with superior economic performance:  unlike China, it is neither culturally nor geographically (transportationally) proximate to core regions of economic development; and it is relatively landlocked.  So there, it is indeed more likely to be institutions that are doing the heavy developmental lifting.  Therefore, instead of exploring for a Beijing Consensus (or even a São Paulo Consensus), what we really should be exploring is a Kiev Consensus. 

Some other interesting observations:
  • Of the developed countries, that with the highest PAW is New Zealand at +23 (30/7).
  • Many African countries have quite good PAW ratings (PAW indexes of +10 or more), perhaps reflecting the difficulties that GDP measures have in capturing the actual economic performance in that region.
  • Although landlocked countries generally do poorly with regards to GDP (as shown in the work of Jeffrey Sachs and others), they seem to do surprising well with regards to PAW.  In addition to Georgia, high PAW landlocked (or at least relatively landlocked) countries include Armenia at +31 (118/87); Kyrgystan at +21 (146-125); Uzbekistan at +19 (135//116); and Nepal at +18 (167/145).  As noted above, given limited navigational and trade utility of the Black Sea, one might argue that even the Ukraine is a relatively landlocked country, at least functionally.
  • Botswana, which was frequently hailed as a developmental paradigm in the early 2000s, has a PAW of -47 (62/109).
  • On the other hand, some seemingly dysfunctional political systems exhibit surprising strong PAW performance, including Libya at +27 (82/55); Zimbabwe at +16 (182/156); and Burma at +11 (161/150).

1 comment:

  1. I really like this proposal, and here is a suggestion to make it even more powerful. The HDI includes a measure of wealth (until recently they used GDP per capita, and now they use GNI per capita). As a consequence, the rank of a particular country in the HDI may reflect a high level of income, and relatively low levels of education and health. Therefore, my suggestion is to calculate the PAW as the difference between a country's rank in GDP (or GNI) per capita) minus its rank the HDI health and education indexes. If this is too complicated, perhaps an easy improvement would be to use inequality-adjusted HDI (IHDI) instead. The advantage of IHDI is that it reflects more accurately the percentage of the population that is actually benefiting from the existing levels of income, health and education in the country. This would bump Jordan up (62 instead of 77 in the HDI) and surprisingly Brazil would go up as well, but a mere two points (75 instead of 77 in the HDI) -- so, no São Paulo consensus. The biggest winner would be Ukraine, which would go from 83 in the HDI to 43 in the IHDI. So, the idea of a Kiev consensus remains in place.