How Countries Get Rich

February 13, 2006

In an address to the Economic History Association in 1980, Richard Easterlin famously asked "Why isn't the whole world developed?" Frustrated with economic theorists and their models of perfect markets, Easterlin focused on differences in educational levels across countries and the importance to the development process of institutions and historical path dependency.

In this CGD Brief, How Countries Get Rich, C. Peter Timmer revisits this question, beginning with the contention by Adam Smith that peace, low taxes, and good government will lead a nation to prosperity. Timmer updates this view by analyzing the role that investments in education, technology and trade have made in the rapid progress of countries like South Korea, Singapore, and Brunei. He concludes that the "miracle" of getting rich lies in creating a durable set of institutions--some public, some private--that encourage the "Smithian conditions" as well as economic openness for long periods of time.

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