Must-Read: Dietrich Vollrath: The Persistence of “Technology”

Must-Read: If you have not been reading Dietrich Vollrath’s weblog on economic growth, you should. He has been teaching the world a masterclass in understanding the patterns and determinants of economies’ long-run growth trajectories:

Dietrich Vollrath: The Persistence of “Technology”: “Diego Comin, Bill Easterly, and Erick Gong… ‘Was the Wealth of Nations Determined in 1000BC?…

…there is a surprising amount of explanatory power in technology measures from 1500AD….

CEG document… that technology levels are incredibly persistent…. CEG… pull out binary measures of technological use for different ethnic/cultural groups. Did your group use wheeled wagons in 1500? Yes? You get a 1. Did you use paper? No? You get a zero. Did you produce steel? No? You get a zero. Average these 0/1 measures across the different measures of technology, and you get an overall score…. Their Figure 2 gives you essentially the whole thrust of the paper. They use the ethnic group technology measures, assign each country a technology level based on the highest scoring ethnic group in their country, and then adjust the country level scores based on the fact that country populations are different in 2002 from in 1500…. They regress 2002 current income per capita on technology levels in past years, they find significant effects. This holds for technology in 1000BC, 0AD, and 1500AD…. Take the 1500AD result in column (3)…. If the technology index goes from 0[.5] ([half] technologies) to ¹ ([three fifths of] the original technologies), log income per capita goes up by ² log points, or by ³…. Also notice the R-squared, which is 50% for the 1500AD results….

CEG… establish that old technology levels have predictive power for current income per capita. They are not looking for explanatory power…. Ultimately, you might want to argue that we want strict causal explanations for why some countries are rich in 2002. But an explanatory paper like this is valuable…. Knowing that anything in 1500AD has strong predictive power for incomes today is informative. It tells us that we have to look back to 1500AD for at least some of those causal forces…. It isn’t the technology in 1500AD per se that matters…. This is an indicator of some kind of variation in culture or institutions (or something else?) that matters… [and] is telling us to something about how powerful those cultural/institutional factors are.