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    This blog highlights effective ideas in the fight against poverty and exclusion, and analyzes the impact of development projects in Latin America and the Caribbean.
  • The 60% solution and the trillion dollar bill

    27
    Feb
    2014

    By

    I came across an astonishing mind blowing number in my commute to work the other day, while listening to Owen Barder (@owenbarder) interview with Michael Clemens (@m_clem) on this Development Drums podcast (highly recommended -end of infomercial).

    The number? 60 percent.

    60 pc eng

     

    Sixty percent of the difference between the income of a person in a developed country and a person in a developing country that can be explained by one thing: the country you live in. Think about that for one minute.  Your standard of living is basically determined by where you were born.

    Not your education, your job, your parents, not your school, your friends, not your health or how hard you work. No. It’s your luck of being born in the right place that determines how well off you are in comparison with other people on this beautiful planet.

    So, where does this number come from?

    From a paper by the economist Branko Milanović, (@BrankoMilan), who wrote  in 2008:

    90 percent of variability in people’s global income position (percentile in world income distribution) is explained by only these two pieces of information. Mean country income (circumstance) explains 60 percent, and income class (both circumstance and effort) 30 percent of global income position.

    So if 60% of the difference between people´s income in different countries can be explained by just one factor, it is not surprising that eliminating barriers should yield huge returns. This is what Michael Clemens called the trillion dollar bills on the sidewalk question. (read that too).

    If barriers to migration were to be eliminated, the gains are one or two orders of magnitude larger than the gains from dropping all remaining restrictions on international flows of goods and capital.  Trillions of dollars.

    60 percent. Trillions of dollars. No wonder the Chinese wall is the only human made structure visible from space.

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