Rich Nation, Poor Nation

In Chapter 1, Rich Nation, Poor nation of The Economics of Macro Issues, the author first identifies the common misconception that economic advantages are predetermined by the natural resources made available to that country.

Economic growth is developed by political and legal institutions. Stable institutions are detrimental to the success of the economy because they provide a sense of security for investing. These investments raise capital stock and promote long-term growth which leads to a higher standard of living.

Generally, these legal systems follow one of these two models: common law or civil law. Common law, like the USA, promotes a limited role for the government and puts its emphasis on the judiciary branch. Civil law, like Mexico,

He believes the relationship between the people and the government or legal system is weekend by the foreign aid. “For instance, most governments depend on their people for taxes in order to run themselves and provide services to their people. Governments that get all their money from aid don’t have that at all,” said Deaton.

Foreign aid and the abundance of natural resources have similar debilitating effects on an economy. These things that are viewed as items that should lead to prosperity actually have the opposite effect. Governments can quickly become corrupt by these natural resources like diamonds by taking control of the markets and the same is applied to their control over foreign aid. If the government is corrupt this aid will be used up by that small elite, centralized government before reaching the

Thus our gift to the poor of the world should be that we tear down the rules that stop them from supplying things to us,” said Tim Worstall, author of Forbes “Proof that Government Aid Doesn’t Produce Economic Growth. I completely agree with his statement. If history is proving the original idea wrong then it is time to find a new approach. At the same time, in terms of trade, if the country is an exclusive, civil law, centralized government and the goods are controlled by the government then while there will economic growth in the interim, like China, there could still be a downfall. In Cuba, the tobacco farmers are required to give 90% of their crop to the government and they can keep the other 10%. Obviously, if there was more ability for them to trade with the United States their economy would flourish but they would still be hindered in the sense that their goods are not their own. In addition, who is to say that a boost in the economy wouldn’t make the government decide to take 95% of their