Why Did the Poorest Countries Fail to Catch Up?

Author: Branko Milanovic

Institution: Carnegie Endowment for International Peace. no. 62

Date: October 2005

Abstract: 

During the past twenty years, the poorest countries of the world have fallen further behind the middle-income and rich countries. The median per capita growth of the poorest countries was zero. This is an unexpected outcome because, from the perspective of economic theory, both globalization and economic-policy convergence imply that poor countries should grow faster than the rich. The main reasons why this has not happened lie in poor countries’ much greater likelihood of being involved in wars and civil conflicts. This factor alone accounts for an income loss of about 40 percent over twenty years. Slower reforms in poor countries compared with faster reforms in middle income countries played some, albeit a minimal, role. Increased flows from multilateral lenders did not help either because the net effect of the flows on growth rates is estimated to have been zero. Finally, neither democratization nor better educational attainment of the population can be shown to have had any notable positive impact on poor countries’ growth. Reducing the prevalence of conflict seems to be the first and most important step toward restoring growth.

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