The Economic performance of Nation-States

Chris Dillow points to research (by Alberto Alesina, William Easterly, and Janina Matuszeski) that indicates that nation-states states make for better economies, as compared to Artifical states. The gap is huge

The 75th percentile of artificial states has a per capita GDP 83% higher than the 25th percentile of artificial ones.

This makes sense- one of the things that struck me while reading Amitav Ghosh's "Dancing in Cambodia, at large in Burma" (I really need to post my thoughts on the book) is how determined the minorities of Burma (the Karens, Karenni, Kachin) were that they would not be dominated by the Burmans. Insurgency broke out within a year of independence in 1947, and ethnic conflict has raged continuously ever since. When ethnicities are mixed up in one state, they tend to spend their time struggling for power and resources, and economic successes of people from one ethnicity are envied and resisted by people from others. Again, social redistribution is much more acceptable in ethnically/racially homogeneous societies.

There is some dispute about the successes of the Nordic model, but I suspect that the fact that they are small (in terms of both population and area) and racially homogenous, and so have shared values helps them avoid conflict. Again, redistribution is much more acceptable in Europe than it is in the US, and indications are that this is because of racial conflict. Alberto Alesina and Edward Glaeser previously published a book comparing redistribution policies in the US with those in Europe. From the Economist's review of that book:

NOTHING better encapsulates the different attitudes of America and Europe to the poor than a table towards the end of Alberto Alesina's and Edward Glaeser's remarkable book, due to be published later this month. It compares the prevalence of three beliefs: that the poor are trapped in poverty; that luck determines income; and that the poor are lazy. The first is held by only 29% of Americans but by 60% of citizens of the European Union; the second, by 30% of Americans and 54% of Europeans; and the third, by contrast, by 60% of Americans and 24% of Europeans.

The other half of the explanation lies in America's racial diversity. In spite of 20 years of unprecedented immigration, European countries, particularly smaller ones like Portugal and those of Scandinavia, are still highly racially homogenous. America, by contrast, has great diversity, which is especially wide in some states. In addition, the poor in America are disproportionately non-white. Non-Hispanic whites are 71% of America's population but only 46% of the poor.

Racial diversity in individual states is correlated with the generosity of welfare. For instance, the authors find that in 1990 Aid to Families with Dependent Children ranged from over $800 per family per month in mainly white Alaska to less than $150 in Alabama and Mississippi, where almost one-third of the population is black. Even after adjustment for inter-state differences in average incomes, the correlation with race remained strong. Across countries, too, racial diversity goes with low government spending on poverty relief.

The reason, argue the authors, is that “race matters”, and they marshal statistical evidence, much of it from opinion surveys, to back this up. People are likely to support welfare if they live close to recipients of their own race; but are antipathetic if they live near recipients from another race. The divergent attitudes of Europeans and Americans to the poor are underwritten by the fact that the poor in Europe tend to be ethnically the same as most other folk. In America, their skin is often a different colour.

The one big problem with having small, ethnically homogeneous countries is that they tend to be next to each other, and could easily end up at war. I am sure that would have some impact on Economic performance. The authors address this:

One type of variable is conspicuously missing in our analysis: wars, both inter-national and civil. Our reason for not discussing it at length is that we found no effects of artificial borders on war. We did find an effect of artificial borders on a subjective measure of political instability and violence, as described above,but clearly it would be desirable to study the objective outbreaks of wars in addition to this variable.The lack of an immediate and strong evidence of a correlation between borders and wars surprised us (although it echoes similar non-results in the literature on ethnic diversity and war). We are not ready to conclude that ethnic rivalries and border disputes are unrelated to wars: we believe that more work is needed.

The authors discuss India and Pakistan, and suggest Pakistan itself is an artificial state.

Is India one, too?