Path Dependency in Economic Development

How is it that two people with similar talents and backgrounds can end up in such different places? This is the old nature versus nurture problem, and one way to unwind it is in terms of path dependence. Early choices, choices that may appear trivial at the time, lead to vastly different outcomes because of the branching structure of outcomes and future options. As Robert Frost says, “knowing how way leads on to way, I doubted if I should ever come back.” According to this line of reasoning, you don’t need genetic determinism to explain big differences. The same rain drop, depending on where it falls, can just as easily end up in the Atlantic as the Pacific.

This same reasoning can be applied on larger scales. How can two similarly situated countries diverge so dramatically? A look around the globe provides some fascinating case studies. Haiti and the Dominican Republic. North and South Korea. Zimbabwe and South Africa.

Here’s something I’ve always wondered about: why isn’t Argentina better off than it is? In Paul Kedrosky’s blog I came across this Financial Times treatment of the U.S. vs. Argentina and path dependency in economic development: Argentina: The superpower that never was.

That’s the weird thing about history. It coulda turned out different, ya know?

One thought on “Path Dependency in Economic Development”

  1. There’s this joke that says God made Argentina so plentiful, so rich, so brimming with natural resources and advantages that he had to compensate in some way.

    So he populated it with Argentines.

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