Be More Like the Brits

A recent working paper by Baier, Dwyer, and Tamura (BDT) presents some more evidence on the importance of geography and institutions on the income level of countries. They use the Philippines throughout the paper to illustrate their point. After reading a few papers on economic growth and development, I can say the Philippines is a frequent example. I guess economists point to the country as one with having all the advantages and yet has been lagging behind its neighbors since the 60s. It's a puzzle to most.

BDT illustrates that if the Philippines have the geographic location of the United Kingdom, the Philippines' labor productivity would be 28% of what the US have instead of just 7%. Productivity of Philippine capital would also slightly increase from 25% of the US to 26%. But any country's geography is unchangeable. BDT also shows what the impact of changing Philippine institutions would be.

If Philippine institutions are more like the UK's, Philippine labor productivity would jump to 75% (from 7%) of the US, and capital productivity would be 58% (from 25%) of the US. Imagine a Philippines like this. This shows that the kind of institutions (i.e. laws that pertain to property rights) in a country has a far stronger impact than just geography. Now how do we change Philippine institutions?