Big Bills Left on the Sidewalk: Why Some Nations Are Rich, and Others Poor

Abstract

Abstract The idea is advanced that it is the rationality of individuals in societies that makes them achieve their production potential rather than their per capita productive resources, and that the low‐income countries of the Second and Third Worlds are poor mainly because they are much further below their potential incomes than are rich countries. If these countries were to improve their governance and institutions sufficiently, there would be huge gains from foreign investment and advanced technologies, which are for the most part, available at relatively modest cost to poor countries. The evidence for this view is taken from studies of the borders of countries and the flows of labour (migration) and capital that cross them, and data on per capita income in relation to population density.

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