In previous weeks I have discussed the first three of four poverty traps outlined in Paul Collier’s book The Bottom Billion: the natural resource trap, the conflict trap, and the “landlocked with bad neighbours” trap. The fourth trap is bad governance. Economic growth which can be brought about by good governance is essentially limited to around 10% per year, but economic decline which is caused by bad governance can occur much more rapidly.
Zimbabwe provides an obvious example of how bad governance leads to poverty, and keeps a country trapped in poverty. A more interesting question is what needs to happen in order for a country to reverse its economic decline. Statistical analysis by Collier indicates that there are three factors which improve the chances of a country’s turnaround: a large population, a high proportion of population with secondary education, and recent emergence from civil war.
There seems to be no correlation between democracy and economic turnaround. Further, the prospect of a country having a turnaround in any given year is only around 1.6%, and countries which suffer from bad governance stay that way for an average of 59 years. According to Collier’s research, the typical cost of a failing state to itself and its neighbours, over its entire history of failure, is around $100 billion.